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Are Financial Regulators a Watchdog or a Problem?

By David Baumann - December 02, 2022

Witnesses from both sides of the debate weigh in at Senate Banking Committee hearing on racism and discrimination in financial services.


Federal financial regulatory agencies are either the solution to discrimination in banking or the cause of the discrimination, witnesses told the Senate Banking Committee at a hearing on the issue Thursday.

“Our nation’s federal financial regulatory agencies such as CFPB must utilize their statutory mandate to supervise U.S. lending institutions for enforcement of the Equal Credit Opportunity Act compliance,” Marc Morial, president/CEO of the National Urban League, told the committee.

Conversely, Rep. Byron Donalds, R-Fla., testified that this would only exacerbate the problems.

“Far too often, the heavy hand of government ushers in sweeping changes that radically transform our markets and implicate American taxpayers and consumers—rejecting transparency and denying debate by critical voices—through rulemakings and guidance, and by expanding the scope of government authority,” he said.

Extending Civil Rights Legislation

During the hearing, senators also weighed in on a measure that would extend civil rights legislation, such as the Equal Credit Opportunity Act, to banking. Committee Democrats, including Chairman Sen. Sherrod Brown, D-Ohio, introduced that bill, S. 4619, in September.

“The Civil Rights Act of 1964 outlawed discrimination in certain places of public accommodation, such as hotels and restaurants, but it does not cover banks,” Brown said. “The lack of clear protections and the loophole within the Civil Rights Act make it difficult to end discrimination and make it hard for victims of racial discrimination to hold these banks accountable.”

The legislation would make it clear that financial institutions are the same as other businesses that serve the public and that they have the same obligations not to discriminate against their customers, added Janai Nelson, president and director-counsel of the NAACP Legal Defense and Educational Fund.

Debate Over Role of CFPB

The committee and its witnesses additionally focused on the CFPB, which again, depending on the political persuasion of the person speaking, is either an effective watchdog or a rabid wolf.

“Under Director Rohit Chopra, the CFPB is using all of its authorities to fight discrimination and has repeatedly gone after financial institutions for their treatment of Black consumers,” Brown said.

Committee ranking Republican Sen. Pat Toomey of Pennsylvania disagreed.

The agency is using authority under its Unfair, Deceptive or Abusive Acts or Practices enforcement powers that it shares with the FTC, he said, adding that, “For nearly a century the FTC never interpreted that language to include discrimination or disparate impact, until after the CFPB’s novel reinterpretation.”

Donalds agreed that the agency is a problem, saying, “It is high time for Congress to eliminate the CFPB and allow our free markets to flourish.”

But Morial praised the bureau and decried efforts to defang the agency.

“These threats against CFPB may result in a return to the system of inadequate financial supervision that failed taxpayers, depositors, investors, homeowners, and other consumers,” he said.

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