Alleging "an enormous conflict of interest," a member of Congress today raised concerns about a $5 million contract that the Consumer Financial Protection Bureau awarded to a company with ties to the agency.
New York-based ideas42 won the CFPB contract in September 2012 for "Innovation development and testing support services," according to the government’s Federal Business Opportunities website.
During a House Financial Services Committee hearing this morning, Representative Patrick McHenry (R-N.C.) questioned CFPB Director Richard Cordray about the propriety of the award. McHenry pointed out that Sendhil Mullainathan, who previously led the CFPB’s Office of Research and is now a professor of economics at Harvard University, co-founded ideas42 and currently serves as an advisor to the company.
Another ideas42 co-founder, Antoinette Schoar, who is described as “a scientific director” on the company website, is a member of the CFPB’s Academic Research Council. (She’s also a professor at the Massachusetts Institute of Technology). Richard Thaler, also an ideas42 advisor, serves on the CFPB’s six-member Academic Research Council. Thaler is a professor at the University of Chicago.
The research council “advises the CFPB on research methodologies, data collection and analytic strategies,” according to the protection bureau's website.
To McHenry, these amount to “direct connections” between the ideas42 and the consumer protection bureau. “A former staffer of yours… gets a $5 million contract,” he said. “It appears to us to be an enormous conflict of interest and raises greater concerns about the policies and procedures you have in place.” He also questioned whether the contract was sole source or open to multiple bidders.
Seemingly caught by surprise, Cordray said he was “quite confident everything was done properly” and promised to follow up on the matter.
A CFPB spokeswoman said the agency issued a public request for proposals, and received eight bids in response. Members of the council had no input on the procurement process, she said.
Also, she said that Mullainathan was not involved in developing the project, the procurement documents or the evaluation of proposals received in response to the solicitation. The final decision to award the contract was made by the Bureau of Public Debt, the spokeswoman said.
The contract is to help the CFPB examine consumers’ financial challenges in a range of financial decision-making areas, including financial challenges faced by older Americans.
Ideas42 did not respond immediately respond to voicemail and email messages for comment.
The company, a non-profit, is named after a passage in the novel The Hitchhiker’s Guide to the Galaxy, where the most brilliant computer ever created ponders the meaning of life. The answer: 42. The computer explains, “I think the problem, to be quite honest with you, is that you’ve never actually known what the question is.” According to ideas42, the company is “grounded in the understanding that all good work is predicated on asking the right questions.”