 |
Congressman David Scott recently lambasted the Consumer Financial Protection Bureau for its “deceitful” auto-loan regulation based on “shamefully flawed” information. Now it looks like the Georgia Democrat was being kind.
The Republican staff of the House Financial Services Committee has released a trove of documents showing that bureau officials knew their information was flawed and even deliberated on ways to prevent people outside the bureau from learning how flawed it was.
The bureau has been guessing the race and ethnicity of car-loan borrowers based on their last names and addresses—and then suing banks whenever it looks like the people the government guesses are white seem to be getting a better deal than the people it guesses are minorities. This largely fact-free prosecutorial method is the reason a bipartisan House supermajority recently voted to roll back the bureau’s auto-loan rules.
The vote occurred before the release of the House committee report, which shows that the regulators were guessing and knew that they weren’t even making good guesses. A May 2013 draft of a memo for bureau Director Richard Cordray prepared by bureau staff including Assistant Director Patrice Ficklin reported they had “reason to believe that our proxy is less accurate in identifying the race/ethnicity of particular individuals than some proprietary proxy methods that use nonpublic data.”
A draft version of the memo also noted that if the bureau never publicly released the details of how it was guessing the race of borrowers, “our internal methodological deliberations will not be discoverable.” In other words, the law-abiding taxpayers getting sued by the bureau would not be able to learn how bogus its discrimination claims were. A draft memo also noted that a “methods announcement” would “endanger” the work of the bureau in part “by providing fodder to defendants to show how our methods are inferior to other proprietary proxies.”
Unable to sustain its non-transparency policy, the bureau eventually released some information on its guessing methodology, and outsiders have been poking holes in it ever since. The Wall Street Journal recently recreated the algorithm used by the bureau to do its guesswork and tested it with some well-known politicos. The algorithm didn’t know what to make of such last names as “Kasich” and “ Obama.”
That didn’t stop the bureau from branding car dealers as racists. A November 19, 2014 memorandum from bureau staff to Mr. Cordray requested authorization for a case against Honda’s American finance company and other defendants.
Mr. Cordray approved the request even though the memo explained what happened when a lender applied the bureau’s methodology to a set of mortgage borrowers whose race and ethnicity were already known. It turned out that “only 54% of the applicants identified by the proxy methodology as African-American were actually African-American,” according to the memo. Good enough for government work? Remember, this fraud was used not only to smear the reputations of law-abiding businesses but also to seek hundreds of millions of dollars in settlements.
The bureau, which had been stonewalling information requests from the House, initially reacted to this document disclosure by saying it wasn’t able to verify their authenticity. A week later the bureau was still giving us the same story, without producing any evidence to suggest the documents aren’t legitimate. The bureau is doing further damage to its credibility—if it had any left.
What we can’t figure out is why, after the yeoman work of Jeb Hensarling’s House Financial Services Committee in exposing this outrage—and an overwhelming bipartisan vote on the House floor—Senators still don’t seem in any hurry to act. Banking Committee legislators on either side of the aisle aren’t making this a priority.
This illegal guessing game of name-that-race underscores how much antidiscrimination law has become a political shakedown, and how the consumer bureau is a lawless body that needs to be reined in if it can’t be eliminated.
Link to article.