The process by which government regulators getting cozy with the businesses they're supposed to regulate is a time-worn and familiar problem. There's even a name for it -- "regulatory capture."
But no government agency in our new gilded age seems to be plunging into this dishonorable relationship as gleefully as the Consumer Financial Protection Bureau. The bureau, it should be remembered, began as the brainchild of Sen. Elizabeth Warren, D-Mass., and was created as part of the financial reforms that followed the crash of 2008 and the recession that followed. The idea was to ride herd on a financial industry that thought nothing of ripping off consumers. That was how the CFPB functioned during the Obama administration.
In the Trump administration the bureau seems more intent on helping financial firms pick consumers' pockets. The latest case in point emerged Wednesday, when its director, Kathy Kraninger, told a conference of financial executives and lobbyists about a joint study the CFPB has completed with H&R Block, the tax preparation firm, about how to encourage consumers to save more. Kraninger's remarks were reported by the Wall Street Journal. Block confirms that it "was able to partner with CFPB to study how taxpayers respond to savings encouraging messages," but didn't give any further details. The CFPB hasn't responded to a request for comment.
According to the Journal, Kraninger said the study focused on use of Block's prepaid credit card "during tax-return season." The study "suggests simple timely marketing messages and small incentives help encourage consumers interested in ways to save during the tax time," she said. The Journal didn't go into much more detail, but it's proper to observe that Block encourages its tax preparation customers to park their refunds on this card, which it promotes as an easy way to access your money. More on that in a moment.
Kraninger said the study "showed positive results, which the bureau plans to unveil in the near future," the Journal wrote.
Let's stipulate some ground rules. A consumer protection agency should be very careful about performing a "joint study" with a regulated business, especially one aimed at promoting that business' product. And double especially when that product falls within the jurisdiction of the agency, as prepaid cards do under the CFPB. Kraninger apparently didn't say when the study with Block would be released or in what form, but any document that has both participants' names on it will seem to at least some consumers as though the regulator is giving the regulated its imprimatur.
That concern could only be intensified by Kraninger's assertion at the meeting that there's "a fantastic opportunity for co-branding for engaging in the kind of studies" that show how to get people to save more. Co-branding by the CFPB and financial firms? Is that supposed to generate public confidence in the agency's independence?
It's proper to note that the study Kraninger mentioned actually began during the Obama administration, under the CFPB's first director, Richard Cordray. But in that era the bureau was far more circumspect than it is now in its relationships with regulated businesses. Under Trump, the CFPB has offered companies much more latitude to push new products at consumers without prior vetting by its staff.
The bureau's original announcement of its arrangement with H&R Block in 2014 said it was aimed at using information Block collected when it provided consumers "with informational materials to encourage saving a portion of their tax refund and having tax preparers introduce to consumers the idea of saving once they learn they will receive a refund." The announcement didn't mention the prepaid card or about "co-branding" anything. As it happens, Block's come-on for its prepaid card doesn't offer consumers any information about saving their refund; it deals chiefly with using the card to spend the refund.
All this reflects a dramatic remaking of the CFPB in the hands of Trump, who in February 2018 installed Mick Mulvaney, his director of the Office of Management and Budget, as the bureau's acting director. Kraninger, who was a Mulvaney deputy at the OMB, took over in December.