If Washington, D.C. had a “Most Wanted List” for unaccountable government agencies, the Consumer Financial Protection Bureau (CFPB) would be Public Enemy No. 1.
Since its inception in 2010, the CFPB has issued more than $5 billion in penalties, punishing financial institutions and other companies under the guise of “consumer protection.” In 2016 alone, the agency collected $525 million in civil penalties, helping finance 1,648 employees and an operating budget of nearly $650 million. Credit unions saw a $7 billion regulatory hit in one recent year, if you account for lost revenue.
Payday loans are perhaps the most targeted. The CFPB now requires payday lenders—those who provide short-term loans to low-income borrowers—to verify a borrower’s income, major financial obligations, and borrowing history before issuing any loan. The agency has issued a long list of “affordability criteria” to lengthen the payday lending process.
Current financial regulations governing short-term loans already insure that customers know the terms and fees of their agreement, while the transaction itself remains quick and transparent. But the CFPB’s most recent mandates jeopardize payday transactions by imposing unreasonably high standards, effectively eliminating the reason for choosing these loans over traditional bank loans in the first place. They leaves low-income Americans with less hope of securing a line of credit.
All of this, while the CFPB operates almost entirely outside of congressional oversight. The agency receives annual funding as a fixed percentage of the Federal Reserve’s annual budget, keeping elected officials out of the appropriations process. Meanwhile, Director Richard Cordray can only be fired by the president and for just cause, a sobering fact that comes under a cloud of allegations of discrimination based on race, age, gender, and sexual orientation.
Fortunately, change is on the way. The House Financial Services Committee recently passed the Financial CHOICE Act by a 34-26 vote, the first step in bringing accountability to the CFPB. The bill would allow Congress to take on a greater role overseeing the agency by eliminating independent funding from the Federal Reserve, where the CFPB currently gets its money. Instead, Congress would set the CFPB’s budget every year. Elected officials would also gain the ability to review any major financial rules proposed by the CFPB, allowing Congress to nullify any regulations deemed too burdensome for employers and consumers. Under the proposal, both houses of Congress would have to give their approval on a financial rule within 60 days before the regulation went into effect.
As the American Bankers Association puts it, the bill would “bring some clarity to the agency’s mission and operations.” Rep. Jeb Hensarling (R-TX), the chairman of the House Financial Services Committee and author of the bill, says that the Financial CHOICE Act is about “checks and balances.”
He’s right. The bill wouldn’t eliminate “consumer protection” from Washington, D.C.’s list of responsibilities; it would merely provide a rogue agency more oversight.
Take payday loans. Rep. Hensarling’s proposal prevents the CFPB from issuing crippling mandates to govern the payday lending process, making it easier for low-income Americans to shop around for potentially life-changing loans. This protects the lender-borrower relationship from government overreach.
Financial choice is long overdue.
Gregory T. Angelo is the President of Log Cabin Republicans, the country’s premier organization representing LGBT conservatives and straight allies.