Cordray Tackles Prepaid Cards, Disparate Impact at Contentious Hearing

WASHINGTON — Consumer Financial Protection Bureau Director Richard Cordray was raked over the coals by House Republican lawmakers on Wednesday over a variety of issues, including its data collection efforts and allegations of employee discrimination.

But he also used his appearance at the Financial Services Committee's semiannual look at the CFPB's budget to offer an update on new rules for prepaid cards and a study expected soon on fair lending issues related to indirect auto loans.

Bankers are concerned about both issues, including what further possible restrictions CFPB might put in place. During the hearing, Cordray emphasized the importance of the prepaid card effort.

"What people don't understand right now is those [prepaid] cards are not protected by any of the consumer financial protection laws currently," Cordray said. "That's a hole in the fabric. We will be not just doing a report, but we're going to be putting out regulations that will provide new protections for those cards."

Specifically, Cordray said the agency was looking at whether it should consider clamping down on overdrafts for prepaid cards as well as how to simplify and streamline disclosures on the product.

"We're trying to create clear, straightforward comparable apples-to-apples disclosures so that people can look at different prepaid cards and get a good sense of the fees," he said. "I expect we will have a rule toward the end of summer and that'll be out as a proposal for public comment."

Cordray also said the agency is working on a white paper to explain the methodology behind the agency's controversial use of disparate impact theory, which the agency is using to cite indirect auto lenders for unintentional discrimination.

Lawmakers on both sides of the aisle have prodded the CFPB on this methodology since the agency issued a bulletin in March 2013 saying auto lenders would be held responsible if the loans coming through partnering dealerships show statistical discrimination, regardless of whether it is intentional.

Cordray fielded questions on the issue during the hearing, indicating they would release a white paper soon on their methodology.

The CFPB has "been very vigorous on this issue and we've provided a lot of information" to Congress and the industry, Cordray said. "We are working on a white paper on our proxy methodology in particular that we expect to have out later this summer and we will continue to try to respond on this issue to make sure people understand."

Concerns about the use of disparate impact come at a time when the agency is grappling with its own internal charges of employee discrimination and retaliation by management. The Financial Services oversight and investigations subcommittee held a separate hearing later on Wednesday to investigate claims by two male minorities — one current and another former CFPB official — that discussed similar accusations, including accusations that one department was known internally as "The Plantation."

"The Plantation is where black women and white men oversee a unit of black employees who are never considered or groomed for management despite their competitive qualifications," said Kevin Williams, a former quality assurance monitor within the CFPB's office of consumer response, in his written testimony. "Bureau management excluded them from the outset as part of a strategy of domination, and completely deprives them of any meaningful opportunity for advancement. And if one exhibits too much merit or insight, one gets beaten down."

Lawmakers on both sides of the aisle brought up such concerns to Cordray earlier in the day. Democratic leaders have argued that Republicans are using employees' stories to justify unwinding the CFPB, though some acknowledged the situation was concerning.

"You [Cordray] have been subjected to years now of complaints from the Republican majority around governance around your structure, around accountability. I will swallow hard, and accept that they are making an argument in good faith as they raise the standard of anti-discrimination, because they are right," said Rep. James Himes of Connecticut. "Unfortunately, the information that came out of CFPB is discouraging and concerning. And I trust that you will do everything you can to make that right."

During the hearing, Cordray took responsibility for the internal reports and employee testimonies that indicated disparities in their performance reviews.

"Frankly, as I look back, we were a startup agency. We still are in many respects. We were ambitious in what we were trying to accomplish. We tried to do too much. It put a lot of pressure on our employees, and that created various issues and problems," Cordray said, noting several measures the agency has taken to settle claims by aggrieved staffers. "I take responsibility for that. It's important for us to understand and fix those things going forward. I'm dedicated to doing so, and I know you will have me back repeatedly to ask about our progress. And I will be happy to provide updates on that progress."

The agency has said it will change its performance review system, including refunding certain employees a collective total of at least $5 million for receiving lower evaluation scores in recent years. It has also settled some of the individual complaints brought to Congress' attention.

Still, Republican lawmakers and the employees who testified at the separate hearing said more needs to be done to address the accused managers who have not been reprimanded as well as the culture overall at the agency.

"I, for one, am uninterested in hearing how the system is to blame, Director Cordray," said Financial Services Committee Chairman Jeb Hensarling. "I'm uninterested in hearing about plans to conduct listening sessions, and hiring consultants, when the real problem is the people you have hired to help run this bureau."

Cordray did not expound on what was being done to certain managers in light of particular cases being settled but he did acknowledge the larger concern about culture.

"Broader than that are issues of culture at the bureau. And these are things that are very top of mind for me, and personally engaged in going forward," Cordray said.