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Bench Memos

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No, the CFPB is Not Good for Consumers



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The Left’s constant refrain regarding proposed changes to the structure of the Consumer Financial Protection Board — by Paul Krugman, the New York Times editorial boardAndrew Rosenthal, congressional Democrats, and others — is that such changes would just weaken the CFPB and hurt consumers. Those structural defects are also the subject of a Separation of Powers challenge to Dodd-Frank now making its way through federal court. 

From a purely tactical standpoint, the Left’s refrain makes sense. Last election, Democrats convinced voters that their opponents did not care about the average person — 53 percent of voters thought that Governor Romney’s policies favored the rich, while Obama received 81 percent  of the votes from the slice of voters who wanted most a president who “cares about people like me” (21 percent of the electorate). Democrats are now trying to recycle the same playbook, cloaking opposition to CFPB reform as consumer protection. Unfortunately, this refusal to contemplate structural reforms has considerable unintended consequences, as recent interactions with U.S. businesses make clear.

Back in July, the Chamber of Commerce sent a letter to the CFPB calling for such seemingly non-controversial reforms as (1) reducing ambiguous rules and undefined terms, (2) removing overlapping and inconsistent processes, (3) performing cost-benefit analysis on regulations, (4) consistently enforcing the CFPB’s rules and regulations, and (5) helping smaller companies better navigate the CFPB’s bureaucracy. 

As the Chamber explained last week, “no action has been taken on most of the [July] suggestions, including all of those that would significantly eliminate the [costly] uncertainty and lack of clarity that continues to cloud the Bureau’s activity.”

The CFPB’s refusal to engage legitimate concerns highlights the danger of making the CFPB director an unchecked consumer-finance czar. With other agencies, concerned citizens can take complaints elsewhere: to Congress for oversight, to other commissioners to hear their case, to the executive branch to fire the commissioner (without meeting much higher bars for removal), or to the judicial branch to enforce strictly defined statutory terms (the CFPB’s “abusive” standard is anything but strictly defined). However, when it comes to the CFPB, concerned citizens must simply hope for a special dispensation from Kaiser Cordray, a lifelong Democratic politician.  

As an unnamed source in last Thursday’s Politico Morning Money put it well:

“[Opponents of CFPB reform] don’t understand what the fight is about. It’s not about the banks. The Fight is about making sure consumers get an accountable regulator. Everyone in our financial system should be held accountable: banks, market participants, as well as regulators. And that’s the simple thing that Republicans have fought for. Making banks happy is not the intention at all.”

The Chamber’s letter goes on to suggest sensible CFPB reforms, such as (1) improving training efforts, (2) implementing consistent enforcement (again), (3) not misusing data requests, and (4) refusing to impose non-public interpretations of the law. Elsewhere, they suggest that CFPB investigators not have “carte blanche [power] . . . to impose huge financial burdens on companies at the outset of an investigation,” but instead have to conform their investigation practices to traditional industry practice. Under any standard, implementing at least some of these suggested reforms should get top priority. Regrettably, if the CFPB’s record is any indication, until there are structural changes to the CFPB we shouldn’t expect much from them.



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