A government agency with its own stream of funding and unaccountable to Congress — what could possibly go wrong? Planting witnesses and skewing data, that’s what.
The agency in question is the Consumer Financial Protection Bureau (CFPB), which was set up under the Dodd-Frank financial-regulation law supposedly to protect consumers from predation by unscrupulous financial institutions. Created as an independent agency ostensibly to insulate it from lobbying, it was made virtually unaccountable instead. Congress holds no power of the purse over it. The judiciary is restrained from reviewing its decisions. Even the president cannot dismiss its director without evidence of gross impropriety. Predictably, that’s led to trouble.
The CFPB has also manipulated the presentation of its data to promote a regulatory agenda. In March, in a follow-up to its study of payday loans, it highlighted several “key findings”: that 80 percent of such loans are renewed or rolled over, that most loans do not reduce in size, that people who borrow each month are more likely to remain in debt for long periods, and that most borrowing involves multiple renewals. The impression one would get from these findings is that payday-loan customers are trapped in a ruinous debt cycle they can’t afford.
Yet some other findings in the report that the CFPB chose not to highlight undercut this interpretation.
People trapped in debt cycles they cannot afford will default, but the report found that relatively few people with multiple loans do. In other words, people who roll over their loans know what they are doing and can manage the cost. They use payday loans as a convenience. Often they work two jobs, have children, and know where every dime comes from and goes to. They tend to have payment cycles that are out of sync with their billing cycles. Rather than miss a utility bill every month, they use payday loans to keep the lights on.
Defending the CFPB’s assault on payday lenders, agency head Richard Cordray said, “Our concern is that all too often those loans lead to a perpetuating sequence. That is where the consumer ends up being hurt rather than helped by this extremely high-cost loan product.” Concern without evidence should not be a basis for policy.
As the widely respected finance blog Seeking Alpha put it, “Despite not having or presenting any evidence that such repeat usage definitively harmed consumers, the CFPB seems content to issue rules that will likely result in a significant revenue haircut for the industry.” This will not protect consumers, as the products they rely on will become harder to get and more expensive. Some of the most vulnerable in society might well see the lights go out or their children go hungry because of the CFPB’s actions.
The CFPB’s lack of accountability should be unacceptable in a democracy founded on the principle of checks and balances. In its short life, the CFPB has already become a rogue agency, more interested in preserving its own powers than in protecting the public interest. Before the CFPB does any more harm, Congress needs to bring it under its oversight.
— Iain Murray is vice president for strategy at the Competitive Enterprise Institute in Washington, D.C.