Garnet Capital Advisors Blog

July 23, 2015

From banks to potholes, CFPB oversight has some calling for change

Out of the Dodd-Frank Act came the Consumer Financial Protection Bureau, and with that, power over a wide range of consumer-related services. In fact, the scope of the CFPB can be so broad at times, that it has some calling for a new direction for the agency - away from a high level of control and back toward more flexibility and leeway for financial institutions.

The power granted to the CFPB is immense - sometimes surprisingly so. This argument is bolstered by a recent citation sent forth from the agency, this time targeting potholes. That's right, the CFPB ruled against a land-development company for having too many potholes in one of its Tennessee-based developments.

Potholes are the CFPB's concern
Driving conditions may seem like the last thing that should be on the minds of the CFPB - an agency geared around financial protections for consumers - but they are. In Tennessee, the land-development firm International Land Consultants was cited for not maintaining its roadways as agreed upon in signed documents with the U.S. Department of Housing and Urban Development.

Believe it or not, but the CFPB actually does have power over land developments and road conditions. The agency oversees registered developments and their associated marketing and reporting standards. This is power moved over from HUD following the creation of the CFPB. 

The argument against International Land Consultants is that the company didn't meet its responsibilities as agreed upon when it registered the development and when it marketed the lots to individual buyers. International Land Consultants said they would maintain the roads until control was passed to the county. The potholes indicated that the roads were not maintained.

Are potholes sign of a larger problem?
While the CFPB protecting consumers from dangerous road conditions isn't a problem in and of itself, it could be a sign of a bigger issue for the government agency.

The argument is that the CFPB has too much oversight, which is hampering the free market and restricting the ability of banks to adapt and grow with the times. This was outlined by Brian Wise, a senior adviser to the non-profit United States Consumer Coalition, in an article for The Hill.

Wise posited that the Dodd-Frank Act, and by extension the CFPB, actually creates a lot of interference for financial institutions. The CFPB makes its own regulations without Congressional input, and Wise believes the agency has moved away from its original mission of consumer education and awareness.

Potholes could just be one area of the CFPB where oversight isn't needed. Following the Great Recession, changes certainly were required to the financial services sector. According to Wise, the CFPB of today has gone too far in the other direction. He argues that with more involvement from Congress, it can get back to more meaningful oversight and consumer protections, all while letting banks grow and evolve with market fluctuations. 

Regulations remain one of the most important considerations for any financial institution. For any questions about this topic or any other issue related to loan sales and the CFPB, reach out to loan sale advisory firm Garnet Capital Advisers for more information.