Reining in the CFPB

In a White House blog post on Monday, just hours before President Obama didn’t nominate her as director of the Consumer Financial Protection Bureau, Elizabeth Warren warned supporters that danger lurks for her regulatory paean to class warfare. “Make no mistake,” she wrote, “this agency still has enemies in Washington, D.C. And they have a plan.”

Golly, let’s hope so.

If by “enemy” the self-styled Oklahoma grandmother means citizens with misgivings about government micromanaging virtually every financial product and service, then, yes, there are more than a few of those. Tens of millions of them around the country, no doubt. And the plan, to the extent one exists, is simply to introduce to the bureau the very same checks and balances that apply to most every other regulatory agency in government — and upon which America was founded.

After all, this is a regulatory agency with unparalleled powers, including consolidated and expanded regulatory authority over credit and debit cards, mortgages, student loans, savings and checking accounts, and most every other consumer financial product and service. Essentially, all consumers’ money falls under bureau purview unless it’s under a mattress.

Fortunately, President Obama’s dithering over a director means the CFPB will mark its first anniversary today with fewer powers than Warren envisioned. Until a director is confirmed by the Senate, the CFPB is statutorily barred from imposing new regulations. That does not mean the bureau is impotent, however. With a battalion of bureaucrats at the ready, and a budget of $500 million, the CFPB is busily gathering intelligence on most every type of financial firm and preparing regulatory sorties under existing laws.

It is an opportune time, therefore, to remedy the bureau’s structural flaws. First and foremost, the CFPB budget should be controlled by Congress, not the Federal Reserve. Otherwise, its budgetary independence will undermine congressional oversight. Its status within the Fed also effectively prevents presidential supervision, while the Fed is statutorily prohibited from “intervening” in bureau affairs.

Bureau accountability also is minimized by the vague language of its statutory mandate. It is empowered to punish “unfair, deceptive and abusive” business practices. While “unfair” and “deceptive” have been defined in other regulatory contexts, the term “abusive” is largely undefined, granting the CFPB officials inordinate discretion.

Bureau proponents deny any lack of accountability, claiming the CFPB can be overruled by the Financial Stability Oversight Council, which is composed of representatives from eight other financial regulatory agencies. However, the council’s oversight authority is narrow, confined by statute to cases in which CFPB actions would endanger the “safety and soundness of the United States banking system or the stability of the financial system of the United States.” Any veto of bureau action would also require the approval of two-thirds of the council’s 10-member board.

Perhaps worst of all, none of this will prevent another financial crisis. If anything, the new agency, by placing new burdens on financial institutions and their customers, will actually increase risks to the financial system. At the same time, Fannie Mae and Freddie Mac — clear contributors to the financial crisis — fall outside the CFPB’s purview.

Nonetheless, the White House insists all this new regulation, along with $787 billion in “stimulus” funds, will revive the economy.

Meanwhile, the unemployment rate stands at 9.2 percent. The budget deficit tops $1.3 trillion, and federal debt has hit the ceiling at $14 trillion. Consumer spending is tepid, wages are stagnant and prices for energy and food are rising.

All of which makes creation of the CFPB supremely ironic. That is, its very existence is rooted in the lapses of seven other regulatory behemoths that were also supposed to protect us from financial calamity. And, its unparalleled powers, unless checked, will curtail the availability of credit and capital, both of which are sorely needed to nurture economic growth.

So, yes, there are indeed “enemies” of the policies that will not prevent another housing market meltdown but will hurt consumers and the economy by limiting financial products and services and raising the costs of those that survive. At the very least, Congress ought to impose a measure of accountability on the CFPB to ensure that the inevitable damage is contained.

Diane Katz is a research fellow in regulatory policy at The Heritage Foundation.

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    This agency will put a real crimp on free enterprise. Prepare for a jump upwards in the unemployment figures.

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  • Tess_Comments

    We do NOT need another agency.
    Obama, stop already with the big government and the spending.

  • williamousa

    Way the hell to much government.

  • ImpeachThatLyingPunk

    This column is “disingenuous” ?… Ok, then you’re just “ingenuous” – I call it LYING. YOU want a “cop”? You have to have a LAW BEFORE THE COP CAN ACT. YOU, and that inexperienced PUNK in the whitehouse thoroughly enjoy putting the ENFORCEMENT in place before you get congressional, legislative & constitutional AUTHORITY in place ( LAWS, instead of new-found, “regulations” put in place when congress won’t give YOUR IDIOT legislative authority ). ” you lost this fight long ago ” ? That goes against logic, flips. Elizabeth Warren GOT DUMPED… That’s not a loss to anyone BUT BOZO. Another lie: “revenues” to WILLINGLY & KNOWINGLY LIE TO “GRANDMA” about the end intent to TAX PEOPLE MORE… And it DOESN’T MATTER who is going to be taxed more… Rich or poor, THE LIE IS STILL THERE. HIGHER TAXES INSTEAD OF SPENDING CUTS… THE ULTIMATE LIE… YOUR MESSIAH IS A MORON – ANY 25-YEAR-OLD MUFFLER SHOP MANAGER has more financial experience than YOUR PUNK in the whitehouse. He’s NEVER had to make payroll on a Friday… “Let me make this clear…”… That’s the ONLY THING your moron knows how to do — SAY THINGS… I’m getting bumper stickers made for when BOZO gets dis-elected. They read ” I tried to tell you your moron was a moron ” You want one, flips ? FREE to you… the DEMOCRAT WAY !!! ( paid for by someone else…)

    • flips

      One of the great victories of the Limbaugh, Beck, Hannity, Heritage Foundation era is that they have convinced vaguely literate working-class folks like yourself that multinational corporations have your best interests at heart.

      They have trained you to rage at federal agencies who will protect you from getting ripped off, polluted, or exposed to tainted food.

      And you call other people morons.

  • flips

    The Heritage Foundation argues against the Consumer Financial Protection bureau because they hate the idea of a cop on the beat who can stop their friends on Wall Street from mugging grandma again or creating new bogus financial “products” that bring down the economy again.

    We have a new cop because there was a lack of regulation on Wall Street, Ms. Katz.

    You lost this fight long ago.

    This column is not only disingenuous, it comes from hired flacks on K Street who are being paid by the banksters who got bailed out. Enough.

    We want a cop who doesn’t answer to Wall Street and can crack some heads when necessary.

    • pylgrym47

      “We want a cop who doesn’t answer to Wall Street and can crack some heads when necessary.”
      But who would this hypothetical “cop” answer to? A bunch of unelected bureaucrats?

      And who’s to decide which heads would be cracked, for what reason and to what purpose? Another bunch of unelected bureaucrats?

      There are already too many unelected officials (aka “czars”) doing end-runs around the legitimate authority of Congress and the Constitution. All these new “agencies” lack oversight and accountability, a clearly *delimited* exposition of their reach, and a process for redress of their own *abuses*.