Director of the Consumer Financial Protection Bureau
American Constitution Society Conference
June 15, 2012
Thank you for inviting me to be here with so many luminaries, including, I am sure, many future luminaries. I will be delighted to follow your progress over the course of your careers, and to have the confidence that comes from knowing that the United States continues to produce committed and passionate leadership – leadership that will prove itself worthy to carry on the traditions of more than two centuries of our democratic republic.
And as I say that, you should recall that not quite a century into this new experiment in government, Abraham Lincoln had to remind us at the Gettysburg battlefield that it remained an open question whether such a novel government “of the people, by the people, for the people” could long endure. Through many further tests – such as wars, economic crises, and dramatic changes in social norms – we have continued to answer that question successfully.
I have a deep appreciation for the American Constitution Society and the way it brings together attorneys, both young and old, who share a common commitment to using the law to improve the lives of all Americans. I am especially honored to follow Justice Ruth Bader Ginsburg, who is a shining inspiration to so many of us here tonight. First by her own example, and then by her persuasiveness – both before and after she became a judge – she has been a powerful force for greater equality in our society. Her entire life has been dedicated to the proposition that all are created equal, and she has devoted her time and strenuous efforts to shaping the law so that it reflects our noblest aspirations.
I was invited to speak here tonight because I am serving in a new role in the federal government as the first Director of the Consumer Financial Protection Bureau. In our everyday work, we seek to further our society’s noblest aspirations as well. We are the first agency ever created with the sole purpose of protecting consumers in the financial marketplace. It is no easy task, but it is crucial because the financial marketplace is no easy place for our fellow citizens as they seek to manage their affairs.
Our task is also crucial because, as we saw with the recent financial crisis, unregulated or poorly regulated financial markets can undermine the stability of the economy and with it the promotion of the general welfare that, as specified in the preamble to the Constitution, stands as one of the basic purposes of the federal government. For that reason, the new Consumer Bureau was also created to help ensure that the recent financial panic and economic meltdown does not repeat itself.
The Bureau was born out of the landmark financial reform legislation of 2010. As was true when the United States was coping with the dislocations of the Great Depression, Congress created this independent agency to treat some of the malignancies that caused so much pain and difficulty for millions of Americans. Our job is to understand and analyze the markets for consumer credit and the kinds of financial products and services that are pervasive in our modern world, and to act as necessary to ensure fair treatment for individual Americans in this realm. Because our nation’s governing structure is ordered around a common economic market that operates as a free market, the work we are doing can help ensure the kind of equal opportunity that lies at the heart of American conceptions about our fundamental way of life.
In approaching our work, we have made it very clear that we see ourselves as “a 21st century agency.” But other than as a chronological tautology, what does this really mean? Among other things, it means an agency built upon a strong democratic foundation of public engagement and transparency. An agency that does not cater to Washington insiders, but rather prides itself on outreach to communities across the country and to the individual consumers we were created to serve. We work to educate consumers, to enforce federal consumer financial laws, and to write rules with the force of law that will make these markets work better for consumers.
We also are an independent agency in the evolving traditions of American government. This model of administrative independence was developed more than a century ago to balance what was perceived as the growing power and influence of bigness in the economy. Out of the Progressive Era and later the New Deal, conceived and developed by practical theoreticians such as Woodrow Wilson and Louis Brandeis, this model is designed to bring greater expertise and more specialized focus into our system of government.
But independent agencies have always co-existed somewhat uneasily with the strong foundations of popular democracy. Putting a light touch on the problem, many courts have spoken of the need to have the bureaucracy simply “fill in the details” of broader statutory schemes. Others have offered grander notions of how “science” can be brought to bear to resolve the kinds of policy issues that arise in governing human society. But these notions have failed to allay concerns that delegating too much authority to the so-called “experts” may be inconsistent with concepts of due process of law or the sovereignty of the people – even though the independent agency itself was an explicit creation by the United States Congress.
And so just after World War II, Congress updated the framework of the federal agency by enacting the Administrative Procedure Act, which lays out more detailed processes for agency rulemaking. Absent exigent circumstances, any substantive rule with the force of law must first be openly proposed, through a notice in the Federal Register, and then it must be subjected to a period of public commentary. The agency writing the rule has an affirmative legal obligation to sift through the comments, digest them, and consider them as appropriate in the course of finalizing its rulemaking.
While the intent of this process is to create heightened transparency through a participatory process that will enhance administrative decision-making, the problem is that, on the whole, people do not read the Federal Register. And while agency communications with the public have improved over the last sixty years, it is still the case that rulemaking as a kind of administrative legislation remains largely inaccessible to the average citizen and most of the businesses to whom the rules apply.
Rules are often written in impenetrable jargon, without a plain language equivalent. It is akin to the practice said to have been followed by a Roman emperor who complied with the law requiring publication of his edicts by having them written in very small script and posted on high pillars where they could not be read by anyone.
This inaccessibility also stems from the fact that agencies may not actively seek out input on their proposals. Instead, they may passively wait to receive it. Unsurprisingly, many comments come from a cottage industry of trade associations, advocates, lobbyists, and regulatory lawyers who are fluent in agency processes. While such groups play an important role in the vetting of rules, individual citizens and smaller businesses find it difficult to participate and present their experience and their views.
At the Consumer Bureau, we want to change this dynamic. We are writing rules intended to protect consumers of financial products and services, a universe that covers everyone in this country. And so these rules, written with the individual consumer in mind and governing the kinds of transactions that we engage in every day, need all of the input, understanding, and support that we can gather from a broad range of Americans.
The Bureau has many financial experts, but it is our average citizens who know the bottom line. Who are they? They are responsible working families that scrape to save enough to pay their bills on time, but have trouble securing a mortgage. They are consumers who are harmed by predatory practices. They are students who leave college saddled with high levels of debt. Our goal is to make sure that their voices are heard in our regulatory processes.
At the same time, the rules that we are writing typically will cover a wide range of institutions, from trillion-dollar megabanks to small community banks or credit unions with maybe just a few employees and assets counted in the millions of dollars rather than the trillions. Like the average consumer, these businesses have much to contribute to the rulemaking process, but they, too, may find it difficult and inaccessible.
So we are doing three things to build a direct pipeline between our agency, on the one hand, and consumers and businesses, on the other hand, both within and outside the rulemaking context.
First, we are wielding the wonders of modern technology to enable consumers to tell us about their struggles with financial issues. We view our website, at consumerfinance.gov, as our front door to the world. Our talented IT team works very hard to prevent it from becoming dense or complicated, keeping it as user-friendly as possible.
On our website, our Consumer Response hotline fields complaints on issues from credit cards to mortgages to student loans to banking products. In the past year, we have been resolving a growing number of complaints by finding real solutions for real people. We recently debuted “Ask CFPB,” an interactive online database that contains the answers to frequently asked questions from consumers. People can also suggest their own questions if they cannot find the answers they need. The answers are written by CFPB experts and then translated into plain language that is easy to read.
Sometimes, consumers may not actually need our help, but rather, they just want to share their experiences. So we also set up a way for consumers to talk to us. We call it “Tell Your Story.” That outlet provides us with a treasure trove of knowledge that comes straight from consumers’ mouths (or, I should say, fingers). Each unique entry is a personal, up-close story about the good and the bad in the consumer financial marketplace that people find it worthwhile to pass on to us.
Second, we have set a new example for soliciting public input to assess and improve our ideas, even before they take shape as formal rulemakings. Our signature “Know Before You Owe” project began with our efforts to simplify the documents you receive when you apply for a mortgage loan. Last year, we developed two unique prototypes to simplify and streamline those hard-to-decipher disclosure forms. Not only did we beta-test these forms, but we crowd-sourced them.
Over the course of eight months, we received thousands of unique comments on our forms from consumers and industry participants alike. In addition, we were able to isolate the parts of the form that drew the most intense interest from commenters – the ones they hovered over the longest – which focused our attention on those same passages in order to figure out why this was so.
Similarly, together with the Department of Education, we launched an online tool to help incoming college students compare financial aid offers across different schools. Already, ten college and university presidents who cover over 1.4 million students have committed themselves to being more transparent with financial aid information.
We launched this tool in a beta form because we wanted to observe people’s reactions – what works, what doesn’t; what is clear, what isn’t. We understood and accepted the risks of surfacing a product that was not finalized, because we knew the feedback from the public would be invaluable. We are gathering that feedback to help us improve the final tool.
Third, we are working to reimagine the formal notice-and-comment process for our rulemakings. This is not an easy job, since consumers and small businesses are inundated with information, and capturing their attention is no easy task. Moreover, government agencies are not typically known for communicating with consumers or small business in a clear fashion – but we want to change that.
One way is by experimenting with pilot projects to adapt the principles developed by some brave souls at Cornell University who have designed what they call the e-Rulemaking Initiative. This approach starts from an easy-to-read summary of the proposed rule’s main provisions and then allows people to comment, in a relatively informal way, on the provisions. A moderator is available to answer questions and, where appropriate, to frame questions to the commenter. That interactive process produces a level of engagement that deepens knowledge on both sides, and allows citizens to actually participate in the rulemaking process by means of a controlled forum.
Of course, except in the world of the movies, it is rarely the case that if you build it they will come. Thus, making our documents more accessible will not suffice unless we also find ways to engender interest in the rules we propose that affect the financial marketplace. When I was the State Treasurer in Ohio, we consciously sought to generate grass-roots interest in the Federal Reserve Board’s proposed rules to protect credit cardholders. We called our effort “SpeakOut Ohio” and we sought input from people all over the state at countless meetings and forums, by telephone and online, from city councils to county commissions. We found that people deeply cared about how they were being treated by the credit card companies.
In two months, we generated over 30,000 comments, which formed a disproportionate amount of the comments received nationwide. That result reflected not only people’s perspectives, but also the intensity of their feelings, and it mirrored the kind of public reaction that soon thereafter led Congress to codify the Fed’s strong new rules into statutory form in the CARD Act.
As these embryonic ideas suggest, we have not yet figured out the optimal way to recast the notice-and-comment process. But we are getting busy with our imaginations, and we are not afraid to try new ways to engage the public.
In short, the central premise of administrative rulemaking is that the rules matter. In fact, they can matter a great deal to the lives of the consumers we are here to serve. So people’s ability to say something about them should also matter. Our new Bureau is young enough and sprightly enough that it can take such starry-eyed principles to heart. So we will. And maybe, with enough time, we will blaze a new trail and win more converts to the cause of reimagining the administrative state.
We aim to see if we can make these processes both innovative and sustainable. Both robust and transparent. Both expert and also broadly participatory to reflect our democratic traditions. Like those of you in the American Constitution Society, we at the Bureau believe that the law should be used to improve people’s lives. We are striving to do just that. And I invite you all to work with us to achieve it. Thank you.