Posted on May 22, 2014

Yet More Lunacy from the CFPB

Thomas Brown, Bank Stocks, May 21, 2014

There really is no end to the insanity that goes on at the Consumer Finance Protection Bureau. Now the agency says it will no longer perform personnel reviews, on the grounds that the results of earlier reviews appeared to show that it discriminates against minority employees. In particular, on a 1 to 5 scale, whites got higher scores than Hispanics, who got higher scores than blacks. To remedy this, the agency will now proceed (and pay everyone) on the basis that all of its employees are 5s. Everyone’s a winner! Only rather than a trophy, everyone gets cash money. Welcome to cloud-cuckoo land.

One wants to burst out laughing, but this is actually yet another sign of what a messed up bureaucracy the CFPB really is.

First, this is an important issue for banks for the simple reason that the CFPB intends to regulate them on the basis that “disparate impact” on minorities–the same disparate impact that showed up in its performance reviews–is prima facie evidence of discrimination in things like lending decisions. Which is ridiculous. No one believes the CFPB is a hotbed of deliberate racism, regardless of how its performance reviews turn out. Similarly, the agency shouldn’t rely on disparate impact as a sign lenders deliberately discriminate against minority borrowers. If it does, then banks, to stay on the safe side, will likely respond by making credit less available to all borrowers. Who does that help?

But more to the point, this is no way to run an organization. It’s an issue of simple equity.“By self-identifying and self-correcting these [performance review disparities],” CFPB head Richard Cordray told American Banker, “we are holding ourselves accountable to the same standards of fairness that we expect of our regulated entities.” {snip}