CFPB Symposium Considers Use of Cost-Benefit Analysis in Financial Regulation

On July 29, 2020, the Consumer Protection Financial Bureau (CFPB) held a symposium on the use of cost-benefit analysis in consumer financial protection regulation.  CFPB Director Kathleen Kraninger provided opening remarks, followed by two panels of experts.  The first panel focused its discussion on how the CFPB uses cost-benefit analysis in developing consumer financial regulations, and whether the CFPB’s current organization and practices support the best use and reporting of this methodology.  The second panel focused its discussion on how the CFPB can help advance the methodology of cost-benefit analysis for consumer financial regulation.  Panelists included speakers from higher education institutions (George Washington University, Harvard Law School, Vanderbilt Law School, Northwestern Pritzker School of Law, and Columbia Business School), non-profits (Better Markets and Public Citizen), and one financial services company (Discover Financial Service). Panelists offered varying perspectives on the best of use cost-benefit analysis by the CFPB.

While the agency is required to “consider the potential benefits and costs to consumers and covered persons” in its rulemaking pursuant to Section 1022(b) of Dodd-Frank, the symposium discussion was not limited to CFPB’s rulemaking function.  For example, one panelist expressed some concern that there is a tendency to use cost-benefit analysis when deciding whether to take enforcement action, and suggested that the CFPB consider alternatives (such as educational outreach).  The panelists discussed the implications of this statutory directive, taking note that the CFPB does not (and often cannot) directly compare or net the benefits and costs considered.  Several panelists cautioned that cost-benefit analysis should not be viewed as an algorithm providing the ultimate “answer” to a regulatory question.

Several panelists expressed concern about what they believe to be inherent challenges to using cost-benefit analysis in consumer protection regulation, including the difficulties in obtaining appropriate data and valuing the benefits of proposed regulatory action.  One panelist recommended that, in order to address these challenges, the agency remain candid and transparent about the assumptions and limitations of its analysis.  For example, the CFPB should identify the particular benefits or costs it is unable to quantify, so that outside experts can try to develop that information.

The cost-benefit analysis symposium is the fifth in a series conducted over the last year.  According to the CFPB, this series is intended to “stimulat[e] a proactive and transparent dialogue to assist the Bureau in its policy development process, including possible future rulemakings.”  Prior symposium topics have included abusive acts or practices; behavioral law and economics; small business lending; and consumer access to financial records.

The results of prior symposia suggest that the CFPB is selecting topics for which it is seriously considering policy changes.  For example, five months after the CFPB’s February 2020 symposium on consumer-authorized access to financial records, the agency announced that it intends to issue an advance notice of proposed rulemaking later this year on precisely that topic.  Taking this track record into account, the CFPB’s attention to the use of cost-benefit analysis in consumer financial protection regulations may signal changes in CFPB policies and procedures concerning the use, methodology, and reporting of cost-benefit analysis.