CFPB's 'Creepy' Data-Gathering Worries Lawmakers

WASHINGTON — Republican senators accused the Consumer Financial Protection Bureau on Tuesday of invading consumers' privacy while gathering massive amounts of data from financial companies.

During a Senate Banking Committee hearing, several GOP lawmakers said the data collection was a tempting target for hackers and raise legal liability issues because consumers do not have a chance to opt-out.

"To many people, this is going to sound downright creepy. To be honest with you, it is," said Sen. Mike Johanns, R-Neb. "People are going to be bothered by the fact that there's this federal agency that's collecting data on the behavior of people like you and me and everybody else who's paying off a mortgage, who's paying credit card bills every month. I think it's a very uncomfortable situation for your agency."

During the hearing, CFPB Director Richard Cordray argued that the data gathering was "essential" for the agency, especially to help it set policies that Congress required through the Dodd-Frank Act.

"You want us to do careful, cost-benefit analysis. We can't do that without good data," Cordray said. "And frankly, for the mortgage rules, we found that we need to develop a national mortgage database so that data is even better in the future."

The hearing was meant to be focused on the CFPB's semi-annual report on operations but lawmakers spent more time talking about data gathering concerns than on the agency's spending. Questions arose after a Bloomberg article reported last week that the CFPB is spending more than $20 million to gather information on 10 million Americans.

"Last month, I specifically asked the agency about this data collection, but the responses I received downplayed the nature and extent of it," said Sen. Mike Crapo, the panel's top Republican. "Now, we learn from the press that it is 10 million accounts and perhaps even more."

Cordray did not deny the amounts, but he said the Bloomberg article "misunderstood a number of things about what the bureau is doing."

He argued that massive amounts of data is already gathered by the private sector and the companies the bureau has hired to collect information are the same ones hired by other regulators.

"I've seen figures that 90% of the data that exists in the world was created in the last two years ... in the private sector," Cordray said. "The big banks know more about you than you know about yourself and me too, as a consumer. The notion that the regulators wouldn't keep up with them in trying to do our job of overseeing them, I think would be quite misguided."

Cordray added that most of the data is from commercial sources that often buy and sell the information to identify market trends. The agency also seeks credit card information by hiring a collector called Argus, which other regulators also use.

But he cautioned that the agency is only gathering "anonymized" information to identify overall trends such as with mortgages, and is not collecting data on the personal information of individuals.

That answer, however, did not satisfy lawmakers.

"Even if the data collected is not personally identifiable to the agency, isn't it possible for the CFPB to hire contractors to dig into this data and obtain personally identifiable information?" Crapo asked.

Cordray said he was not sure whether that is possible but "it certainly is not what we're doing and not what we're going to be doing."

"We have no interest in… watching consumers. We do have an interest in understanding how financial products and services are affecting consumers," Cordray said. "We have an interest in being able to do the kind of very meticulous cost-benefit analysis you want us to do as we write rules, so we can get them right."

In the first quarter of fiscal year 2013, the CFPB's second highest expense next to payroll was contractual services. Of the agency's $86 million in expenses in the first quarter, roughly 34%, or $28.9 million, was for contractual services that include shared services with the Treasury Department.

"The size of this data collection and the amount of money being spent by the agency are a cause of concern for me, and should be for those Americans whose credit cards, checking accounts and other financial data are being sent monthly to the CFPB," Crapo said.

While Republicans focused on the data collection, Democrats mostly asked questions about the agency's recent mortgage and servicing rules.

Sen. Jack Reed brought up the $9.3 billion independent foreclosure review settlement with other federal bank regulators, asking what the CFPB's involvement would be in ensuring struggling borrowers get modifications without being foreclosed upon at the same time. The CFPB's servicing rules specifically prevent so-called "dual-tracking" that allows banks to continue with a foreclosure at the same time they are working with the borrower on a modification.

For "everyone who is caught up in this situation, as soon as our rules take effect, [they] are governed by those rules," Cordray said. "It doesn't matter that the mortgage was in two or three or five or eight years ago. And the examinations that we're in process right now, [we] are examining the problems right now."