How the CFPB Seeks to Shape the Message

WASHINGTON — When Harry Douglas Lane was called upon to speak at a Consumer Financial Protection Bureau forum last year, he appeared to be just another person in the crowd.

A former auto dealer turned fierce consumer advocate, Lane had been outspoken on his nationally syndicated radio show (he goes by "Harry Douglas" on the radio) in pushing for more rules to rein in indirect auto lenders, the subject of the forum.

But unbeknownst to the rest of the audience and the press covering the event, the CFPB had personally invited Lane to attend — and funded his trip at his request.

"They paid my way up there. I flew in the night before, they put me in the Club Quarters, they paid for the whole nine yards," Lane said in an interview. "They wanted me to be there."

It is common for agencies to pay for members of advisory boards and even witnesses to attend sponsored events, but funding the travel arrangements of audience members is not the policy of other regulators or the CFPB itself.

The CFPB says that Lane was initially considered as part of a panel, but that it eventually opted instead to pay travel assistance for him to speak as a member of the audience. The agency did not disclose the connection publicly because Lane's role was "limited," according to Jennifer Howard, a spokeswoman for the CFPB.

When it comes to shaping the message surrounding itself, the CFPB is becoming known for acting differently than other banking regulators. The agency routinely embargoes press releases until late at night, limiting the ability of outsiders to comment during in the first wave of press coverage; that's a practice other banking regulators do not employ, although other federal agencies have done so.

To be sure, some of the CFPB's moves likely come in response to the hostile environment in which it operates. Even before the agency opened its doors, it had many powerful enemies, including Republicans who oppose its existence on ideological grounds and bank lobbyists who disagree with much of its agenda. Every action it takes is heavily scrutinized, and there are many in financial services and elsewhere quick to seize on any misstep, real or imagined.

Some of the actions the CFPB makes, like late night embargoes, are also strategies frequently employed by banks, other private companies and even political campaigns. But that, say critics of its public relations tactics, is precisely the point. The CFPB should be held to a higher standard than politicians and for-profit businesses and instead behave like other banking agencies, they say.

"The CFPB's press office does seem to act a lot more politically oriented compared to other regulators," said Bill Himpler, executive vice president at the American Financial Services Association. "Part of that could be because the other agencies have been around for decades so they're much more regular order in trying to get institutions they regulate the information they need to be responsive."

The CFPB disputes the notion that it operates in a more political fashion than the other financial regulators.

"There is no evidence to support this incendiary assertion," said CFPB spokeswoman Howard.

An Ally in the Audience

Lane's presence in the audience at the November forum likely didn't give the CFPB what it was expecting. The agency had called the event to discuss the impact of a bulletin it issued in March of last year that warned lenders about partnering with auto dealers who are shown statistically to charge minorities higher interest rates than others. At the heart of the issue was the use of a legal doctrine known as "disparate impact," which says lenders are responsible for discrimination against minorities, even if it is unintentional.

At the time of the Nov. 14 forum, the CFPB was under heavy fire from the industry and several GOP lawmakers, who claim it relies on questionable data for which the agency has not disclosed its methodology to their satisfaction.

Lane probably seemed like a natural ally. From his Tennessee studio, he has railed against discriminatory financing at auto dealerships and even hosted a CFPB official on his radio show to discuss the issue. According to Lane, the CFPB invited him to attend the forum and then agreed to provide funding for the trip at his request.

Yet when he was called upon to make a comment, Lane wasn't as supportive as the CFPB might have anticipated, instead questioning whether the bulletin went far enough.

"I just want to know from the Consumer Financial Protection Bureau. Is this really going to have teeth, are you really going to protect the retail automotive consumer?" he asked. "Or is this just going to be a happy talk thing?" (In the video below, Lane's brief speaking role appears roughly 2 hours and nine minutes into the forum.)

A CFPB official deflected Lane's question, saying that the agency was there to receive feedback, not provide it.

Lane ultimately came away disappointed.

"I guess they didn't want me to say what I was saying and they hoped I was going to say something else like I supported the bulletin," Lane said, who added that he still talks with the CFPB. "Once I walked out of that forum, I knew we'd be standing here today in March and we wouldn't have any more protection for the retail automotive consumer. It was a dog and pony show."

The CFPB confirmed that it agreed to pay travel assistance for Lane even though "our invitations policy generally does not permit us to reimburse travel for someone attending a CFPB event as an audience member," according to spokeswoman Howard.

She did not offer an explanation of why the agency contradicted its own policy, other than to say that it was a unique situation. The trip is estimated to cost more than $1,000 (Lane declined to detail the amount, and the CFPB says it has not yet reimbursed Lane.)

"We are in the process of reviewing the stated need for travel reimbursement," Howard said.

Lane's "participation in the event was extremely limited and did not present an opportunity for disclosure."

Howard said the CFPB did not pay for any other audience members to attend the forum, nor does the agency have a practice of doing so for other events.

"To my knowledge, we have not paid travel expenses for audience members to attend any of our other public forums," Howard said. "We do not plant people in the audience and have no reason to do so. Our events, both in the field and in Washington, attract a wide range of stakeholder perspectives and we welcome that. We work hard to make sure that all sides have a chance to be heard, including and especially those who disagree with the approach the bureau is taking on a particular issue."

The CFPB may have personally called upon potential allies at the forum because of an earlier experience last year. During a public meeting last April of a board that advises the CFPB, payday lenders bussed in dozens of supporters to protest the agency's possible moves to restrict such products. The result was a parade of borrowers and payday loan employees who dominated the public comment portion of the meeting and literally begged CFPB Director Richard Cordray not to act.

Still, some observers said the CFPB created a problem for itself by funding the attendance of a speaker in the audience, which could appear as an attempt to "plant" someone more favorable to the agency's point of view, even if that was not the purpose.

"It may not be ill-intentioned but the problem in ethics is always how it's perceived," said Frank Shafroth, director of the Center for State and Local Government Leadership at George Mason University. "The most important rule is if it does create any appearance of a problem, it can then create an ethical problem…It doesn't matter whether it was intentional, it's just based on how it will be perceived by a third party."

Midnight Embargoes

One of the biggest differences between the CFPB and other banking regulators is its frequent use of midnight information embargoes.

The agency will often give reporters a press release on a significant new regulation around mid-day with the understanding that they will not make it public until the middle of the night. As part of an embargo reporters are limited in what they can share with outsiders.

"Our embargo prohibits reporters from sharing the materials with third parties before the specified time," says Howard. "However, a reporter can call outside sources about embargoed materials while the embargo is still in place, as long as the specific content is not divulged."

In essence, the CFPB's strategy results in stories appearing in the print edition of most major newspapers the following day without substantive input from outsiders. Often, observers who are contacted during the embargo period decline to comment in advance of seeing the report or regulation. As a result, the initial article on a new regulation or study will often appear with the CFPB as the sole source.

"I've never heard of a midnight embargo before," said Carolyn Carlson, an assistant professor of communication at Kennesaw State University, and a former longtime reporter and editor for the Associated Press. "An embargo is meant to regulate the flow of information. That's all it is and it's meant to give the people with information some control over when the information can go public while still giving the reporters access prior to the release of information."

Embargoes are in common use among bank regulators, but they typically last between one to three hours, even for complicated regulations such as the Volcker Rule, and almost always end during daylight hours.

Midnight embargoes are extremely rare among banking regulators. The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have not used midnight embargoes in recent memory, nor are they common among other financial regulators, such as the Federal Housing Finance Agency and the Federal Trade Commission. The sole exception appears to be the Special Inspector General for the Troubled Asset Relief Program, which has also used midnight embargoes on several reports.

At least a few other federal agencies have used midnight embargoes, including the Department of Education, which employed one in mid-March concerning the release of new rules for for-profit colleges.

The CFPB, in contrast, has used midnight embargoes for nearly every major new rule, proposal and study it has released. It frequently does so immediately prior to a field hearing or significant announcement. It most recently used one last week, releasing a copy of a study on payday lending under a midnight embargo prior to a hearing on the subject the next day.

But it has also used midnight embargoes when it released proposals on sweeping changes to the mortgage market, including the creation of "qualified mortgages," and for rules and studies concerning the Home Mortgage Disclosure Act, arbitration clauses and nonbank student loan servicers.

"The goal of the midnight or overnight embargo is to ensure that the news is delivered on the day it is officially released," said Howard. "That's why we most commonly use a midnight embargo when we are officially delivering our news at an event the next day. We have also used shorter embargo times when the news is not complex or timed to an event."

Howard objects to the suggestion that using late embargoes is unusual.

"Midnight or overnight embargoes are used by other federal agencies," she said. "Therefore, it would be unfair and inaccurate to characterize our use of midnight embargoes as unique among federal regulators."

The CFPB's frequent use of midnight embargoes has upset bankers, who privately complain that they do not have the chance to comment in the initial story discussing an important new regulation. While media organizations can obviously write a follow-up story containing those views, such articles are rarely given the space and primacy of the first-day take.

"Midnight embargos are not typical of how financial regulators release news of vital importance," said Richard Hunt, president and CEO of the Consumer Bankers Association. "The practice makes it difficult for the financial services industry to present our viewpoint in the media."

Yet some outsiders say the CFPB is just responding as private companies or other groups would.

"The peculiar nature of the embargo ending at a certain point means they can then have their message dominate the story line … because most papers have to publish the story by first thing in the morning," said Lenny Steinhorn, a professor of public communication at American University and former political consultant and speech writer. "People use strategies all the time to maximize their image and story and control the message. This is just yet another one that someone is doing to get their ideas and issues out that are most favorable to them."

Some consumer groups also suggested that the issue is not that big a deal.

"We would put out a statement the next day regardless so that has not been a challenge for us," said Tom Feltner, director of financial services at the Consumer Federation of America.

But to many observers, the embargoes are part of an overall pattern.

"There's no doubt that they like to have complete control over the message," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr.