What Consumer Protection?

Imagine creating a federal agency that is accountable to no one.

Its funding is not approved by Congress. It is funded directly and automatically by the Federal Reserve.

Its current unelected director may have been appointed illegally, as the U.S. Supreme Court has ruled that other appointments made that day were illegal “recess appointments.”

Its director “enjoys more unilateral authority than any other officer in any of the three branches of government of the U.S. Government, other than the President,” according to the U.S. Court of Appeals, which ruled that the federal agency’s governing structure is unconstitutional. (Last week, the court granted a request for a review by a broader set of judges.)Dem and Rep

Many are calling President Trump autocratic, but he didn’t create this most autocratic of government agencies. It was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the Trump Administration is seeking to change.

Most Powerful, Least Accountable

The agency, the Consumer Financial Protection Bureau (CFPB), is to consumer protection as the Affordable Care Act is to affordable care. It does the opposite of what its name suggests it does.

Writing in The Wall Street Journal, Congressman Jeb Hensarling, who chairs the House Financial Services Committee, noted that since the CFPB was created, the number of banks offering free checking has drastically declined, bank fees have increased, and mortgage originations and auto loans have become more expensive for many Americans.

“The CFPB is arguably the most powerful, least accountable agency in U.S. history,” according to Hensarling. “CFPB zealots have the power to determine the ‘fairness’ of virtually every financial transaction in America. The agency defines its own powers and can launch investigations without cause, imposing virtually any fine or remedy, devoid of due process. It requires lenders essentially to read their clients’ minds, know and weigh their clients’ comprehension levels, and forecast future risk. It can compel the production of reams of data and employ methodologies that ‘infer’ harm without finding any specific instance of harm or knowing violation.”

As an example of CFPB overreach, consider its charges against lenders making auto loans. If lenders are discriminating they, of course, deserve to be penalized. However, the CFPB’s approach was so questionable, the House voted 332-96—with 88 Democrats in support—to force the CFPB to rescind its auto-lending guidance.

  • To prove discrimination, how do you think the CFPB determined the race of borrowers? It guessed! If your last name seemed African-American to the folks at the CFPB, it was assumed that you were African-American. If it sounded Caucasian, it was assumed that you were Caucasian. As a result, when the auto lender settled for $80 million and the government reimbursed borrowers, it undoubtedly provided some of the money to white would-be borrowers based on alleged discrimination against black borrowers.
  • The CFPB based its findings of discrimination on “disparate impact.” Using disparate impact as a guide, a company can be found guilty of discrimination even when no one consciously discriminates. It’s based on the outcome. If, for example, an auto lender’s customers are predominantly white, it has to find more black customers somewhere, somehow to avoid being charged with discrimination. Equality is, of course, a worthy goal. However, imagine how difficult it would be for a small business to avoid discrimination based on disparate impact. How does the business owner know all of the applicable minorities in its market? How does it recruit them as customers? What if they don’t want to be your customer?
  • The CFPB failed its own disparate impact test, giving white employees better performance reviews than black and Latino employees. It addressed the issue by upping everyone’s performance grade to a “5” on a scale of 1-5, resulting in higher salaries for all. The average salary of CFPB staff in 2012 was $190,000. Any openings?
  • The CFPB is not supposed to have jurisdiction over auto dealers, which are excluded from its jurisdiction by Dodd-Frank. But the CFPB regulates auto dealers through enforcement “bulletins” on auto lenders, according to Hensarling.

The House Financial Services Committee has issued three investigative reports just on the CFPB’s auto lending, alleging all sorts of legal misdoing. And these are the people who are supposed to be protecting us?

Then There’s Wells Fargo

The CFPB’s first director, U.S. Senator Elizabeth Warren, has been stumping for the CFPB by accusing Republicans of trying to gut it.

Perhaps the CFPB does some good for consumers, but not nearly as much good as Sen. Warren claims.

“Democrats’ latest talking point, that the CFPB has forced banks to give $12 billion back to their customers, is incorrect for the same reasons as the myth that the bureau forced Wells Fargo to return $185 million to its victims,” according to National Review. “The bank actually paid less than $5 million to the millions of customers who had unauthorized accounts opened in their names; the remaining fines disappeared into various government black holes.”

National Review adds that is was the Los Angeles Times that exposed Wells Fargo in 2013 and “the CFPB allowed it to continue for three years while the Los Angeles City Attorney and Comptroller of the Currency led investigations that produced the $185 million settlement.”

So maybe it’s worth retaining the CFPB and maybe it’s not, but at the very least, it seems that the structure of the bureau needs to change and its uber-political director Richard Cordray needs to be replaced.

Either that or we need to create another bureau assigned to protect consumers from the Consumer Financial Protection Bureau.

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