Data collected by the U.S. Consumer Financial Protection Bureau doesn’t invade individuals’ privacy, is a vital regulatory tool and mimics techniques already in wide use by the private sector, the agency’s director said today.
“The big banks know more about you than you know about yourself,” CFPB Director Richard Cordray said at a hearing of the Senate Banking Committee, where he faced criticism about a bureau data-collection initiative. “And me too, as a consumer.”
The CFPB is collecting data to improve its rule-writing and supervisory work, sometimes through purchasing it from credit bureaus like Experian Plc. It is also requesting large amounts of information from major banks, such as JPMorgan Chase & Co. and Bank of America Corp. in areas such as checking account overdrafts and credit cards.
Senator Mike Johanns of Nebraska, a Republican on the panel, highlighted potential violations of individual privacy from the CFPB’s work.
“To many people, this is going to sound downright creepy,” Johanns said at the hearing. “People are going to be bothered by the fact that there’s this federal agency that’s collecting data on the behavior of people like you and me and everybody else who’s paying off a mortgage, who’s paying credit card bills every month.”
Cordray said the bureau does not watch over people in an inappropriate manner, and guards data carefully. Consumers do sometimes share personally identifiable information, like when they file complaints.
“The notion that we’re tracking individual consumers or invading their privacy is quite wrong,” Cordray said.
Cordray emphasized that the bureau needs this information to do the work, such as cost-benefit analysis, that Congress has requested. He also said the private sector has fully embraced data analytics, often labeled “Big Data.”
Senator Michael Crapo of Idaho, the panel’s senior Republican, complained that he “specifically” asked the agency about its data collection last month, but learned more about the subject from an April 17 article published by Bloomberg News.
“The responses I received downplayed the nature and extent of the issue,” Crapo said.
Crapo said that private-sector data collection is fundamentally different from the CFPB’s activities.
“Nobody in the private sector has the power that the federal government has,” Crapo said. “The power of the government is behind this data collection.”
Cordray said the Federal Reserve sometimes purchases data for its own work on consumer finances.
The CFPB has wrangled with banks at times over how much data it collects through the supervisory process, Cordray said at the hearing. The agency’s goal is to establish a starting point for where the market stands, he said.
“There are times where as we examine institutions, we have to begin by getting a baseline of data to calibrate what is going on there,” Cordray said.
In its first 21 months, the bureau has secured $425 million in relief for 6 million consumers wronged by financial service providers, Cordray said in his opening statement at the hearing, billed by the committee as a semi-annual report to Congress.
“We also imposed penalties on the companies to deter such activity in the future,” Cordray said. “These actions will serve as a warning signal for anyone who seeks to profit by deceiving or misleading consumers.”
The CFPB, created by the 2010 Dodd-Frank Act, has taken enforcement actions in areas including credit-card add-on products such as credit monitoring, and mortgage insurance. As a consequence, companies including Capital One Financial Corp. and American Express Co. have been forced to pay fines to the government and restitution to consumers.
Cordray won’t have a parallel hearing in the House of Representatives, according to House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican.
In the face of a Republican blockade, President Barack Obama installed Cordray in the director’s job in January 2012 using a so-called recess appointment, which bypasses the Senate.
A federal appeals court subsequently concluded that similar appointments to the National Labor Relations Board were unconstitutional, though that decision can be appealed to the U.S. Supreme Court. Hensarling said in an e-mailed statement that the court ruling “makes clear that there is no legally appointed director of the CFPB at this time,” so the committee will not have Cordray testify.
In the letter, Hensarling promised “rigorous oversight” of the agency via testimony from other employees, and requests for documents and other information.
Representative Maxine Waters of California today asked Hensarling to reconsider his position and let Cordray deliver his semi-annual testimony on the CFPB’s work.
If Cordray doesn’t get a chance to testify, Waters, the top Democrat on the financial services committee, said she is “prepared to use the rules of the committee to provide the director the opportunity to give testimony.”