WASHINGTON — Consumer groups have long denounced the influence of big banks and for-profit companies on agency rulemakings, often pointing to the number of meetings held between regulators and institutions about a proposal.
Now, in an ironic twist, payday lenders and supporters of mandatory arbitration are using the same tactic in accusing the Consumer Financial Protection Bureau of disproportionately favoring consumer groups at the expense of industry.
House Republicans and payday lending groups are hoping to use so-called ex parte communications with consumer groups as a basis for an eventual lawsuit against the mandatory arbitration and small-dollar lending rules. (The mandatory arbitration rule was finalized in July, while the payday lending rule is expected to be released soon.)
"There are reasons why they are doing these challenges," said Andy Hessick, a law professor at the University of North Carolina at Chapel Hill. "Sometimes ex parte contacts can give rise to further comments or information that should have been addressed in the justification for the regulation. So they might say the ex parte contacts resulted in secret or undisclosed information that would reveal the rule isn't justified."
House Republicans have already suggested as much when it comes to the arbitration rule. The House Financial Services Committee subpoenaed the CFPB about its meetings with consumer groups in an attempt to uncover proof that the agency colluded with them and trial lawyers over the regulation, which would ban mandatory arbitration clauses.
The rule is the result of an "unholy alliance with one of the Democratic Party's favorite interest groups, namely the trial lawyers lobby," House Financial Services Committee Chairman Jeb Hensarling, R-Tex., said in a July 25 statement read on the House floor opposing the CFPB's arbitration rule. “What the bureau and the wealthy trial lawyers want is to take away arbitration for consumers and instead force them into class action lawsuits, which just so happens to require consumers to hire the very trial lawyers that would benefit from this rule."
Payday lending groups, meanwhile, are raising similar concerns on the small-dollar proposal.
The Community Financial Services Association of America, a trade group for small-dollar lenders, claims the CFPB has met with five times as many consumer groups than with the financial industry in ex parte meetings between Oct. 7, 2016, when the comment period for the payday plan ended, and July 31, 2017.
"To overplay the representation of those who have a financial interest or those who have a consumer interest without an equivalence on the other side is a dangerous tendency for an agency," said Dennis Shaul, the group's CEO. "Whoever comes into the bureau is a special interest and they are pleading for a special cause. Those who accord themselves the title of consumer advocate may not represent the consumer's interest. It isn't the title that counts, it's the content of what they have to say."
Asked if he thought the payday industry's views were not being heard, Shaul said: "I would not say that our view is not being heard, but it is being less well-heard."
The CFPB met with 100 consumer groups, compared to 20 banks, credit unions, nonbank lenders and data providers, according to analysis by the trade group. The group claimed there were 209 consumer advocates present at those meetings, compared with 126 financial services industry representatives.
The numbers are hard to gauge, however, because the site that tracks them, regulations.gov, sometimes treats comment letters the same as ex parte meetings.
By a separate count, the CFPB met with 133 consumer groups and 86 payday lenders, credit unions and others, putting the ratio of consumer groups to lenders much closer, according to documents the trade group provided to American Banker.
The CFPB disputes the idea that it was improperly influenced by consumer groups. Sam Gilford, a CFPB spokesman, said the small dollar rule took "years of extensive research, and robust public engagement with stakeholders on all sides of the issue, including industry."
All discussions with outside groups since June 2016, when the payday proposal was issued, "have been published in the public docket," he said.
Consumer groups see the allegations as "ridiculous, trumped-up claims," said Lauren Saunders, an associate director at the National Consumer Law Center.
"This is just bluster," Saunders said. "The CFPB has ex parte communications with the banking industry all the time. In most areas, there's a lot more industry contact than consumer contacts, and if that makes [the CFPB] biased, they are biased in favor of the banking industry."
To some extent, Republicans and the payday lending group are trying to use a oft-used tactic employed by Democrats and consumer groups, who often delve into the official record to determine if an agency has met more often with banks and their representatives.
Sen. Elizabeth Warren, D-Mass., has frequently been critical of the federal banking agencies opening their doors to meet with banks and bank trade groups more often than consumer groups. She wrote last year that federal regulators took 419 meetings while developing the Volcker Rule, 93% of which were with those representing bank interests.
Sen. Sherrod Brown, the top Democrat on the Banking Committee, meanwhile, has asked Treasury Secretary Steven Mnuchin to detail how often the Treasury met with consumer groups in regard to an executive order on financial reform. Mnuchin met with 39 banks, compared with 18 consumer advocates and nine regulators, according to Brown's staff, which collected information from Treasury.
Some argue it's not equitable to treat meetings with consumer and financial groups the same, noting that institutions may see a financial benefit from successfully changing a regulation while a consumer group would not.
Ultimately, it's not clear how the claims of bias will work against the CFPB. Some see the GOP subpoena, which targeted communications between the CFPB and five groups, as an attempt by supporters of mandatory arbitration, such as the U.S. Chamber of Commerce, to obtain documents that could be used in a lawsuit against the rule. (The committee has asked for communications between the CFPB and the American Association for Justice, the National Consumer Law Center, the National Association of Consumer Advocates, the Alliance for Justice, and Public Justice.)
Such documents could determine the fate of the rule in court.
"There's nothing" in the Administrative Procedure Act "that prohibits ex parte contacts, but it does require that the agency base its rulemaking on the record in front of them," Hessick said. "If there are a whole bunch of ex parte contacts, they could be getting information that is not in the record, and if it's not in the record, and when a court evaluates whether a rule is reasonable, they look at all the things before the agency. If it's based on ex parte contacts, one could argue that it's unreasonable because it's based on things not in the record."
If the agency adopted a rule, it could get vacated or the CFPB might be ordered to write an opinion to address the additional comments.
"It looks like this is trying to delay it," Hessick said.
Updated August 15, 2017 at 11:49AM: The original version of this story initially misstated the number of meetings the CFPB held with consumer and financial groups, based on data provided by the Community Financial Services Association of America. It has been updated to reflect the number of groups the CFPB met with.