CFPB Is Data-Mining Credit Card Data

As though Americans needed to hear about another bureaucracy gather massive amounts of personal data. The Consumer Financial Protection Bureau is mining the data from 42billion transactions made with 933 million credit cards. In spite of the bureau’s reassuring name, many will undoubtedly be appalled to hear of this development.

The bureau in question was created by the Dodd–Frank Wall Street Reform and Consumer Protection Act in the wake of the 2007-2008 financial crisis that kicked off the recession from which the economy is still struggling to recover. It is an independent unit located inside and funded by the United States Federal Reserve whose jurisdiction includes banks, credit unions, securities firms and more, concerning mortgages, credit cards and student loans. It writes and enforces rules for financial institutions, examines financial institutions, monitors and reports on markets, as well as collects and tracks consumer complaints.

The CFPB and the Dodd-Frank legislation that created it are already unpopular among those who argue that stifling regulations contributed to the financial crisis. Developments recently come to light will likely broaden the anger at both the law and bureau.

“The Dodd-Frank Act…bars the bureau from collecting personally identifiable financial information on consumers…” The Washington Examiner reports but that didn’t stop the CFPB from “monitoring credit card usage at 110 banks, including Morgan Chase, Bank of America, Capital One, Discover and American Express.”

The Examiner went on to report:

[Representative Spencer] Bachus said [CFPB director Richard] Cordray “exceeded his authority” and violated both provisions if he tried to use the trustee program to obtain files from a company that maintains a document archive for thousands of bankruptcy case attorneys.
“He [Cordray] basically said to me, ‘We needed to do this. This was something we thought we ought to do.’ He never said, ‘OK, it probably violates two provisions of the law,’ a very clear ‘Do not do this,’ ” Bachus said.”

The CFPB is not just ordering the financial data as though the law gives them power to do so; it is essentially buying up the data, at least from some of the companies. Back in April, before the story started to break, Bloomberg reported the following:

Clarity Services Inc., a Clearwater, Florida-based credit reporting agency, will earn $443,260 for providing data on short-term credit known as payday loans, the documents show.
Together with the Federal Housing Finance Agency, the consumer bureau is also building a mortgage database that will integrate consumer credit information with loan and property records. CoreLogic Inc. (CLGX), an Irvine, California-based provider of financial and property information, will be paid about $796,000 for loan-level data on mortgages, procurement records show.

However:

Sendhil Mullainathan, the consumer bureau’s assistant director for research, said the agency is committed to protecting the privacy of consumer information and doesn’t collect personally identifiable data such as Social Security numbers.

This may not be very reassuring to those who observe the continual increase in the potential of “big data analytics.” Besides, the wrong handful of federal agencies combining their data unchecked could be dangerous. In light of the revelations about the actions of the IRS and the NSA, no one will be keen on a federal agency gather that much financial data, no matter how benign the ostensible purpose.

Some are fighting back. Morgan Drexen, a company that designs and delivers integrated support systems to attorneys across the United States, filed a lawsuit to block the CFPB from taking enforcement action against the company and asked the court to declare that the bureau is unconstitutional because it violates the Constitution’s separation of powers. (The CFPB sued Morgan Drexen back for “charging advance fees for debt relief services in violation of the Telemarketing Sales Rule and engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act.”)

As the story breaks, conservatives and libertarians are likely to be joined in opposition to the CFBP by moderate and independent Americans who are tired of invasive federal agencies and the backlash against big government will continue.

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