WASHINGTON -- In a significant break with traditional federal policy, the new Consumer Financial Protection Bureau is appealing directly to the public for nominees for key advisory positions -- crowdsourcing the appointment process to help ensure that the agency is attuned to consumer abuses and committed to curbing them.
The CFPB is reaching out for nominees to its Consumer Advisory Board, a group of experts who guide the agency's attention toward problems in consumer finance as the issues develop in communities. The crowdsourcing move is required by the Dodd-Frank Act, the Wall Street reform legislation that President Barack Obama signed into law in 2010. The strategy accompanies a broader push from CFPB founder Elizabeth Warren to utilize both the public and new technology to ensure that the new agency remains accountable to citizens. Warren is now a Democratic candidate for Senate in Massachusetts, with former Ohio Attorney General Richard Cordray serving as CFPB Director.
At other federal bank regulators, such boards have long been limited by bureaucratic, political and industry pressures. The Federal Reserve's consumer board has frequently been stacked with corporate executives ideologically opposed to the very idea of consumer protection regulation, and even bankers -- the result of a nomination process that is largely a game for industry insiders, though community activists and academics have also been nominated.
In 2006, the Fed's consumer advisory council included officials from JPMorgan Chase, Wachovia, Countrywide, and Option One -- companies that were all heavily involved in the sale of subprime mortgages. Seven other banking executives, a MasterCard lawyer, a Wal-Mart vice president and the marketing chief for consumer credit score company Equifax were also on the board, alongside community development advocates and consumer attorneys.
When members of the board did in fact suggest during the heyday of subprime mortgages that the central bank take action against abuses, the Fed simply ignored the advice.
But the Fed and other regulators had dueling responsibilities. They were tasked both with maintaining banks "safety and soundness" and with protecting consumers from fraud and deception. Safety and soundness regulation focused on preventing banks from failing, and in practice, regulators typically signed off on just about any practice that resulted in short-term profits for banks, under the hypothesis that more money today meant a lower likelihood of failure tomorrow.
That hypothesis was proven wrong when scores of banks either failed or sought major bailouts as a result of their subprime excesses. In the process, hordes of American homeowners were ripped off.
But the CFPB doesn't face that dual mandate -- its only responsibility is protecting consumers from bank malfeasance.
"The Consumer Advisory Board will be a key resource in our mission to protect the American consumer," CFPB Director Richard Cordray said in a written statement Thursday. "This Board will provide valuable input from a group of true experts with diverse backgrounds but a shared goal. I am eager to see it established."
The actual members of the Consumer Advisory Board will ultimately be chosen from among the nominees by the CFPB.
The CFPB has made a habit of appealing to the public for information on consumer finance trends. It has a user-friendly consumer complaint service, and a "Tell Your Story" section where wronged consumers can warn each other about misleading banking practices.
WATCH CFPB Director Richard Cordray ask for nominations in the video above.