CFPB News: Bureau Places Itself Under the Microscope

Financial Services Law

In a potentially critical new development, the Consumer Financial Protection Bureau (CFPB or Bureau) will now impose what it characterizes as independent “peer review” on certain of its more important internal research. Will this provide an important check against partisan analyses or generate more of the same? We tell you all you need to know in this update.

What happened

The CFPB has elected to subject its own important research to external peer review. To conduct the peer review, the Bureau will rely on its Academic Research Council (ARC).

But what is the ARC? The Dodd-Frank Wall Street Reform and Consumer Protection Act obligated the CFPB to create a Consumer Advisory Board (CAB) to advise and consult with the Bureau’s director on a variety of consumer financial issues. The legislation was silent on the ARC.  

Under the administration of the original director, Richard Cordray, the CFPB also created three additional councils: the Community Bank Advisory Council (CBAC), the Credit Union Advisory Council (CUAC) and the ARC. As to the ARC, its original role was to advise the Bureau on its strategic research planning process and research agenda and provide feedback on research methodologies, data collection strategies and methods of analysis, including methodologies and strategies for quantifying the costs and benefits of regulatory actions. The appointed members are law or economics professors at various universities. 

In 2018, the acting director, Mick Mulvaney, disbanded the various discretionary councils. In 2019, the new director, Kathy Kraninger re-established and expanded the focus of the meetings to cover broad policy matters; increased the frequency of in-person meetings from two times a year to three times a year for the CAB, the CBAC and the CUAC; and, critical here, elevated the ARC to a director-level advisory committee and increased its meeting frequency; and increased term lengths from one year to two years, among other enhancements. We reported on those developments here.

In announcing the initiative, the Bureau refers to a 2004 memorandum issued by the federal Office of Management and Budget (OMB), the Final Information Quality Bulletin for Peer Review, that promotes peer review of so-called influential scientific information and highly influential scientific assessments. The goal was to elevate the quality and credibility of important technical and scientific information disseminated by federal government agencies. 

Now, with this latest development, the CFPB is further elevating the ARC’s status and importance in providing a second set of eyes on critical research findings that are often used to justify Bureau rulemaking and other policy initiatives. As the Bureau’s announcement acknowledges, however, this panel is not exactly a set of outsiders. The panel, it notes, already “advise[s] the Bureau on its research practices and topics” and knows “the methods the Bureau uses.”

And the peer review puts the CFPB under the public microscope as well. Materials generated during the peer review process will be shared with the public on a dedicated webpage, including information on when peer reviews are requested, copies of the original research, the ARC’s actual peer review report, the Bureau’s response and, where “merited,” a revised research report that addresses major concerns raised by the ARC’s review.

The Bureau indicates that it is still determining the scope of research to be subjected to external peer review but also announced its first project: time-barred debt. The CFPB will subject to peer review an internal report, Disclosure of Time-Barred Debt and Revival: Findings from the CFPB’s Quantitative Disclosure Testing, posted February 21, 2020. As of today, the original research report, the Bureau’s request for peer review and the ARC’s peer review report to the Bureau are available on the peer review webpage. Other materials, as applicable, will be posted as they become available.

Why it matters

If preserved in future administrations, independent peer review will be a critical check on Bureau overreach. 

In announcing the change, the Bureau argues that peer review of its important technical and scientific research will “ensure the quality of its research,” “strengthen the policy making that stems from the research” and enhance “public confidence that its policies are driven by the best available evidence.” 

Of course, independent peer review needs to be exactly that, and Director Kraninger (and whoever leads the CFPB in the years to come) will need to ensure that both the underlying internal research and the peer review that follows it, is not driven primarily by partisanship in a hyper-partisan age—a difficult path to follow for an agency with such incredibly broad powers.

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