The leadership shuffle at the Consumer Financial Protection Bureau has shone a spotlight on the agency’s ideologically-driven agenda. But under new management, the CFPB actually has a chance to achieve some positive good for a change.
The bureau was created in response to the 2008 financial crisis to be a consumer watchdog — to police, enforce, and supervise providers of financial products and services. Consolidating all consumer financial protection authority into one organization sounds good in theory. In reality, it gave an independent agency too much power with no accountability.
The bureau has been consumed by politics at the expense of consumer protection. The foundation of the CFPB, as an independent (perhaps even unconstitutional) agency with guaranteed funding, was already frightening. But it increasingly became an enemy of the very consumers it was designed to help.
{mosads}A perfect example of this can be found in the arbitration rule, which banned arbitration clauses used by financial services to prevent consumers from utilizing class-action lawsuits. According to the CFPB’s own study, consumers on average won more than $5,000 when using arbitration, versus only $32 returned to plaintiffs after using class-action litigation. Consumers who used arbitration usually received their awards sooner compared to those using class-action litigation. Fortunately, this rule favoring class-action lawyers has been repealed.
When Richard Cordray resigned as director, he hastily named Leandra English as his deputy, and claimed that his departure made English the new acting director. The Department of Justice’s Office of Legal Counsel has since released a memorandum that nullified Cordray’s coup and approved the president’s pick, Mick Mulvaney, as acting director.
With Mulvaney settling into his new role, a number of reforms could come both from Congress and from inside the CFPB that could help rein in what has become an unaccountable bureaucratic agency.
Most importantly, Congress could vote to bring funding under the regular appropriations process. Republicans have attempted this in the past — to no avail. But this is a crucial step that must be taken. The CFPB’s guaranteed funding from Federal Reserve profits offers little accountability and ownership.
The agency needs to avoid choking off access to capital and financial services, especially for small businesses. This is the charge Mulvaney says he has been given. He wants to bring the bureau to the point where it can “protect people without trampling on capitalism.” Under previous leadership, the CFPB made it difficult for financial services to flow.
And the CFPB needs more accountability. It is illogical that an agency would not be answerable to the people it was created to serve. Mulvaney stated that most people would be terrified to see how much power he has as CFPB director.
We need structural changes within the CFPB as well as legislative changes to address this unaccountability. Congress should hold the bureau accountable by ending the use of the civil penalties fund to pay left-leaning “consumer” groups. Furthermore, the CFPB should cease regulation through enforcement actions that allow the bureau to pick and choose who has to follow the rules and who doesn’t. Specific rules are needed to be effective.
Ultimately, the best option for “improving” the CFPB is eliminating it, which Mulvaney has supported in the past. Given the political difficulties in accomplishing that, immediate steps such as those outlined here can be taken to at least rein in the bureau’s scope and power. Given that Mulvaney has vowed to take a “dramatically different” approach than his predecessor, enacting quick reforms could be a big step in the right direction.
Paige Terryberry is a policy analyst at Americans for Prosperity, a nonprofit group aimed at promoting limited government.