On February 14th, Senator Ted Cruz (R-Texas) and Rep. John Ratcliffe (R-Texas) gave the American people a big, beautiful Valentine by introducing legislation to abolish the Consumer Financial Protection Bureau (CFPB).
“Don’t let the name fool you,” said Senator Cruz in the press release announcing the effort. “The Consumer Financial Protection Bureau does little to protect consumers. During the Obama administration, the CFPB grew in power and magnitude without any accountability to Congress and the people.
“The legislation that Rep. Ratcliffe and I are introducing,” Cruz continued, “gives Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”
The CFPB, proposed by Elizabeth Warren before she was a U.S. Senator from Massachusetts, was one of the many offspring of the 2010 Wall Street Reform and Consumer Protection Act. That Act, sold as cure for the 2008 financial crisis, became the vehicle to smuggle in a new regulatory agency with jurisdiction over everything from pawn shops to credit card companies, none of which had anything to do with the financial crisis.
From the beginning, it was unprecedented in scope and authority. Unlike other regulatory agencies, which are governed by bipartisan boards, the CFPB is led by a single director appointed by the president — a position held since January 2012 by Richard Cordray.
The president can only remove the director for “good cause,” like gross negligence or criminality. (Policy disputes wouldn’t qualify.) Neither the Federal Reserve chairman nor the Fed board can remove the CFPB director for any reason. The most unaccountable bureaucrat in the federal government may be the director of an agency most Americans have never heard of.
At least that’s how it was until last October, when the U.S. Appeals Court in Washington, D.C., deemed this arrangement unconstitutional, and removed the “good cause” requirement. Arguably, that means that President Trump can now fire Cordray at will. Thomas Boyd argued recently in the Wall Street Journal that the president should do just that.
I agree with Boyd, but why aim so low? The problem with the CFPB is not merely Richard Cordray. The problem, as legal scholar Michael Greve put it, is that it “is an ‘independent’ agency (bureau? Whatever.) of a form never before seen in 225 years of our history.” The CFPB, though first created by Congress, is outside the funding and oversight of Congress.
It gets its money from the Federal Reserve and from fines it imposes on financial institutions. Although its budget is capped by the Fed’s operating expenses, neither the Federal Reserve nor its chairman has control over any employee of the CFPB or over any rule that the CFPB implements. It’s rule-making powers seem boundless, like the decrees of a sovereign lord.
Rather than benefitting consumers, the CFPB has often acted capriciously to punish financial companies it doesn’t like.
Some of its targets have been bad apples, but others have been ordinary businesses subjected, in effect, to clandestine shakedown operations. Rather than improving the consumer environment for Americans, in 2012 alone the CFPB “increased the cost of consumer credit by a total of $17 billion and depressed job creation by about 150,000 jobs,” according to estimates of a House oversight committee.
Its champions claimed that the CFPB would streamline the regulatory landscape of the financial services industry. But that landscape was already encrusted with layers and layers of government regulations and regulators — from state audits to the FDIC, federal regulations (like Truth-in-Lending), Fair Credit Reporting, rules against discrimination, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Trade Commission, and the Office of Thrift Supervision (the only agency replaced by the CFPB).
If the CFPB was meant to simplify regulations, why were all of these presumably redundant agencies not abolished?
In reality, the CFPB is a political entity with arbitrary powers, pushed quickly through by a Democratically-controlled Congress and signed by a Democratic president. The former CFPB lawyer Ronald Rubin has recently revealed what critics had long suspected: The vetting process for CFPB jobs was engineered to create a bureau staffed almost entirely by partisan Democrats.
Rather than creating an agency “independent from politicians beholden to the financial industry,” Congress in 2010 created an “agency independent from Republicans.”
If President Trump is looking for ways to make good on his pledge to slash counterproductive regulations, he should support the Cruz-Ratcliffe effort to abolish the CFPB.
Jay Richards, PhD, is author of the New York Times bestselling book on the 2008 financial crisis, “Infiltrated,” assistant research professor at The Catholic University of America’s Business School, and a Senior Fellow at the Discovery Institute.