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Todd Zywicki on the CFPB’s ‘Policy-Based Evidence-Making’



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The Consumer Financial Protection Bureau released its “qualified mortgages” rules a few weeks ago, a move that will dramatically alter the housing industry’s regulatory landscape. Unfortunately, the move also illuminates the need for structural reform to the CFPB. Qualified mortgages offer lenders protection from consumer lawsuits. Under the new rules, banks that offer non-qualified mortgages are potentially liable if they lend to borrowers who cannot repay their mortgage. Industry observers generally believe that the housing industry will discontinue most non-qualified mortgage products, rather than risk the liability.

This is a high-stakes rule for the CFPB. Offer too strict of a qualified-mortgage definition, and the CFPB could dry up the mortgage industry, leaving deserving consumers out of the housing market. Offer too loose of a definition, and the CFPB could make it too easy for unqualified borrowers to obtain a mortgage, exacerbating housing conditions that initially led to the financial crisis.

For a great summary of why this intervention into the housing market could do more harm than good, I highly recommend Todd Zywicki’s piece,“Policy-Based Evidence-Making at the Consumer Financial Protection Bureau.”

As Zywicki argues, a far-reaching agency like the CFPB will inevitably make political judgments, even if it feigns following an “evidence-based”decision-making process. Unfortunately, when the CFPB does inject itself into highly charged policy debates, no meaningful oversight process exists to correct the Bureau when it goes off track. Consumer czar Richard Cordray is not only free to push through expansive regulations on his own, but he also operates the CFPB without congressional appropriations oversight, or the fear of the president firing him at will. And this is not to mention his expansive power to subjectively prohibit, on a case-by-case basis, “abusive” consumer financial practices.

Even if the CFPB masterfully designed the mortgage industry’s rules this time, why should they have this sort of quasi-dictatorial power in the first place? The CFPB’s structural deficiencies — the subject of the constitutional challenge to Dodd-Frank — are reason alone to oppose the CFPB. No one should have this level of unchecked authority, regardless of their intent.


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