By Brett Linley
If you’ve been reading the news, there’s a good chance you’ve seen the CFPB pop up. The Consumer Financial Protection Bureau (CFPB), established in 2011, is not a particularly renowned agency. However, it has no insignificant impact.
As the brainchild of Senator Elizabeth Warren (D-MA), the CFPB was one of many financial reforms pushed through in Dodd-Frank. Keeping in mind the predatory behaviors of mortgage lenders before the housing crisis, Congress created this agency as a consumer watchdog.
Congress gave the CFPB a wide scope of powers to keep consumers safe. While well-intentioned, appointed director Richard Cordray continually stretched those powers to the max. These abuses continued to the point where, in the case PHH vs. CFPB, an appeals court ruled the CFPB’s structure unconstitutional.
Now, a new power struggle has arisen. With Cordray finally stepping down, both sides of the aisle are scrambling to get their pick in control. For most onlookers, it may not be clear why any of this matters. However, the matter is anything but trivial. When it comes to the CFPB, it’s important to know what it does. What’s more, it’s important to know why it has to go.
What the CFPB Does
The CFPB certainly has a lot on its plate. Mortgages, credit cards, and student loans are considered the primary domain of the financial watchdog. The agency’s job is to root out practices in these fields that one might consider “abusive.” While the way that a person might define “abusive” may vary, at least the powers listed are fairly clear and defined.
Even so, the agency, primarily under the leadership of Cordray, found ways to expand their mandate. Payday and automobile loans, neither within the CFPB’s scope of power, are both examples of Cordray stretching the limits of the law. Yet, the CFPB continually tried to make the case that any and all aspects of consumer credit are in their domain.
These abuses are no accident. The unchecked expansion of power we see from the CFPB comes directly from its structure. For funds, they don’t go to Congress. Instead, their funding comes directly from the Federal Reserve. The aforementioned Richard Cordray, acting as director, was the singular head of the agency. Only removal by the President for cause, not at pleasure, the director’s accountability is minimal at best.
The power of the director to unilaterally sanction markets that he finds unpleasant is without a doubt unconstitutional. No single entity of government, especially an independent and unaccountable agency, should be able to act as judge, jury, and executioner. When there are structural unconstitutional features present, it should be no surprise when additional problems arise. Knowing what the CFPB does, it isn’t difficult to see why it has to go.
Why Consumers Should Want the CFPB Gone
Credit is something that, at this point, envelops the lives of all consumers. In that sense, it’s too important to put in the hands of unaccountable bureaucrats. Instead of simply guarding the markets consumers wish to use, the CFPB instead tries to destroy markets that they see as unfit for the public.
An easy example of this overreach is payday lending. One of the CFPB’s most recent rules, again outside of their authority, was to clamp down on this way to obtain credit. Because of the high fees associated with payday loans, the agency thought it best to impose new, stricter rules. In their mind, poor people are being victimized by the existence of these loans.
However, instead of being predatory, payday loans often act as a last means of credit for poorer citizens. The lack of underwriting on the loans makes it so most people can obtain credit when other banks would refuse. By hassling payday lenders, you don’t get safer loans. You only get fewer loans for those that need them most.
The CFPB also believes that they can ban mandatory arbitration for financial services companies. With a “father knows best” kind of arrogance, they believe that they’re swooping in to save the day. But, as noted by the Cato Institute, “If customers were really upset about arbitration, it seems they would have presented a terrific market for a company that would offer them contracts free of arbitration clauses.”
Overreaches like this, again, just boil down to the director having far too much power. In the aforementioned case, PHH vs. CFPB, Cordray’s abuses were on display. After PHH appealed a decision by one of the CFPB’s in-house judges, a problem within itself, Cordray unilaterally hiked the $6 million fine issued by $103 million. As noted by Cato, Cordray claimed he could not only interpret existing regulations as he wished, but apply that new understanding retroactively.
That kind of abuse is absurd, and nothing short of dictatorial. As noted above, the appeals court agreed and ruled the CFPB’s structure unconstitutional. It may be up to the Supreme Court now to make it final. While it can be easy to lose interest in such matters, as often the targets in the news are just the very rich like PHH, much is at stake. Things like due process aren’t just for least among us, they’re also for the least popular among us. And make no mistake, the least vulernable are just as at risk under an unlimited CFPB.
When an unaccountable agency can drastically impact the products we use every day, it’s everybody’s problem. The CFPB may not be well known, but it should be. Acting Director Mick Mulvaney may provide a temporary reprieve from the madness, but there’s a better way to ensure the CFPB’s abuses stop. End it.