Law prof: CFPB database is government-sponsored Yelp

By Michael Carroll | Mar 29, 2016


ARLINGTON, Va. (Legal Newsline) - Though initially heralded as a consumer voice that would restrain deceptive and abusive business practices, the Consumer Financial Protection Bureau has come under increasing fire from critics, with one George Mason University law professor concluding that the bureau’s complaint database serves no coherent regulatory purpose.

“It is essentially nothing more than a government-sponsored version of Yelp,” Todd J. Zywicki told Legal Newsline in an email.

Zywicki, the executive director of the George Mason Law & Economics Center, says similarities exist between the government database and the Internet service that allows people to review local businesses.

“Simply dumping isolated, unvetted complaints on the public record without any verification of their accuracy doesn’t serve any apparent regulatory purpose,” he explained.

An article published recently in American Banker Magazine concluded that the bureau’s database of complaints reported by consumers was chock-full of errors and was found to be unreliable by some of its own federal employees.

The article quoted one former senior official at the CFPB as saying that the data was not reliable or simply incorrect more than one-quarter of the time.

The article noted that the bureau, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has seen a dramatic rise in the number of complaints filed annually, from 20,000 in 2012 to more than 70,000 in a single quarter of 2015.

“Earlier studies found that those mostly likely to complain were not those who are thought to be most vulnerable, such as low-income and low-education,” Zywicki said.

Instead, complaints come disproportionately from more sophisticated individuals living in the more affluent area codes around the nation, he said.

“Now, of course, the one percent deserve protection if they feel like their airline didn’t give them access to the airport lounge with their credit card,” the professor continued. “But that doesn’t seem like the most highly leveraged use of government resources to regulate consumer credit.”

Zywicki also said that complaints can be useful in identifying a pattern of problems in a particular industry or signaling to regulators that a company or individual should be further investigated and scrutinized. But without proper vetting to ensure accuracy, the usefulness of the data becomes questionable, he said.

CFPB Director Richard Cordray responded on the American Banker website that the claims in the November 2015 article were inflated. Cordray said the bureau’s inspector general recently performed an extensive audit of the consumer database and found only a small number of complaints with errors in them.

Furthermore, he said that businesses themselves play a part in ensuring the accuracy of the database when they let the bureau know about complaint duplication or complaints made by an unauthorized party. Problematic complaints such as those are rooted out of the system, Cordray said.

More News

The Record Network