The CFPB – Are We There Yet?

Decision“Bureaucracy destroys initiative. There is little that bureaucrats hate more than innovation, especially innovation that produces better results than the old routines. Improvements always make those at the top of the heap look inept. Who enjoys appearing inept?”  ― Frank HerbertHeretics of Dune

Just to refresh memories:

  • The CFPB – the spawn of Dodd Frank – is charged with oversight of consumer compliance rules from seven different federal agencies, including: the Federal Reserve Board (the Board); the Office of the Comptroller of the Currency (OCC); the Federal Deposit Insurance Corporation (FDIC); the Office of Thrift Supervision (OTS); the National Credit Union Administration (NCUA); the Federal Trade Commission (FTC); and the Department of Housing and Urban Development (HUD). [Source here.] For a list of the 23 (and counting) federal laws it enforces, including the likes of the Truth in Lending Act, Real Estate Settlement and Procedures Act, Fair Debt Collection Practices Act, the SAFE Act, and others, go to link here.
  • It is run by a single Director, Richard Cordray;[1] Next to the President of the United States, the Director of the CFPB is the least accountable figurehead in the country.
  • It is not subject to any significant congressional oversight, including its budget. “From the combined earnings of the Federal Reserve System, the Board of Governors gives the Bureau an amount “determined by the Director to be reasonably necessary to carry out the authorities of the Bureau” under federal consumer financial law.” [Source here.]
  • The breadth of its power is, itself, breathtaking. Read the summary following below…at least twice. Take small bites, chew slowly, then digest. What becomes apparent is that any provider of a consumer product or service with a $-sign next to it, is subject to CFPB oversight.

The  CFPB has authority to regulate any “covered person,” defined as anyone who engages in offering or providing a consumer financial product or service.  A “consumer financial product or service” is a financial product or service offered or provided for use by consumers primarily for personal, family, or household purposes, or delivered, offered, or provided in connection with such a consumer financial product or service.   Financial products and services include:  extensions of credit and loan services; real estate settlement services and property appraisals; taking deposits, transmitting or exchanging funds, or acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer; sale, provision, or issuance of a payment instrument or a stored value instrument over which the seller exercises substantial control; check cashing, collection, or guaranty services; financial data processing products or services; financial advisory services; and collection and provision of consumer report and credit history information. [Source here; footnotes omitted.]

All this may be changing. In an April 15, 2015 Housingwire article [”Overwhelming majority in House vote to expose CFPB activity’], the distant drumbeats are getting louder, and from both sides of the aisle. From the article:

An overwhelming bipartisan majority of the House of Representatives want more transparency at the Consumer Financial Protection Bureau.

A total of 401 Congress members from both parties voted Tuesday for H.R. 1265, the Bureau Advisory Commission Transparency Act, sponsored by Rep. Sean Duffy, R-Wisc.

Just two members voted against the bill.

The bill would bring greater transparency and accountability to the CFPB by subjecting it to the Federal Advisory Committee Act.

Only three agencies are exempted by statute from open meeting provisions in the Federal Advisory Committee Act – the Central Intelligence Agency, the Office of the Director of National Intelligence and the Federal Reserve.


Similarly, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said at a hearing last month that the CFPB remains unaccountable and should be held to more transparent standards.

“The CFPB undoubtedly remains the single most powerful and least accountable Federal agency in all of Washington,” Hensarling said. “When it comes to the credit cards, auto loans and mortgages of hardworking taxpayers the CFPB has unbridled, discretionary power not only to make those less available and more expensive, but to absolutely take them away.

The Bureau Advisory Commission Transparency Act now goes to the Senate for consideration. 

I believe Mr. Cordray is a very smart guy. But he’s a politician. Power is the politician’s aphrodisiac. If the CFPB is to be run by political appointees, I would prefer it be a bevy of bureaucrats, i.e. a commission, so that there is a checks and balances system at work.

Whether one thinks the CFPB is a good thing or bad thing is probably driven largely by his or her political bent. The Blues love it, because like, Rahm Emanuel, they hate to let a good crisis [i.e. the collapse of the housing and credit markets in 2007-2008] go to waste; the Reds hate it because they don’t like to see regulatory overreach, which due to more complexity, guarantees further regulation.  A cradle-to-grave business model for those who believe the American public, like sheep, need to be herded.

For those who might disagree, I will remind them that the Dodd-Frank Act, which was a ponderous tome of 2,300 pages, is five years old now. And the thousands of pages of rulemaking is still being written.  According to the Davis Polk Progress Report here;

At the end of the fourth quarter of 2014, a total of 277 Dodd-Frank rulemaking requirement deadlines have passed. Of these 277 passed deadlines, 101 (36.5%) have been missed and 176 (63.5%) have been met with finalized rules.

In addition, 231 (58.5%) of the 395 total required rulemakings have been finalized, while 91 (23%) rulemaking requirements have not yet been proposed.

As of July 2014, according to CNN Money, only 53.2% of the rulemaking had been completed. At that rate, we’ll just be wrapping up the process around 2020, a decade after it was created.

And has the law helped consumers? Has it helped the economy?  Not according to Peter J. Wallison, of the American Enterprise Institute, writing in the op-ed pages of Wall Street Journal here:

The administration and Congress acted hastily. The Treasury Department sent draft legislation to Congress only a few months after taking office in 2009, and the law—spurred by a promise from then-Rep. Barney Frank for a “new New Deal”—passed a year later. The left’s view had been settled: the crisis would be blamed on Wall Street greed and insufficient regulation. The act set out to implement that worldview by subjecting American finance to unprecedented government control.

It is now clear, however, that government housing policies—implemented primarily by Fannie Mae and Freddie Mac—forced a reduction in mortgage underwriting standards, which was the real cause of the crisis. The goal was to foster affordable housing for low-income and minority borrowers, but these loosened standards inevitably spread to the wider market, building an enormous housing bubble between 1997 and 2007.

By 2008 roughly 58% of all U.S. mortgages—32 million loans—were subprime or otherwise low quality. Of these 32 million loans, 76% were on the books of government agencies, primarily Fannie and Freddie, showing incontrovertibly where the demand for these loans originated. When the housing bubble burst, mortgage defaults soared to unprecedented levels. Although the left’s narrative placed all blame on the private sector, these numbers show that private firms were responsible for less than a quarter of the problem.

Yet Dodd-Frank said nothing about government housing policies and ignored Fannie and Freddie. It focused on placing additional restrictions on financial firms, often for no apparent purpose other than to extend government control.

Riddle Me This, Batman:  Do all the idealistic brainiacs at the CFPB who are responsible for creating thousands and thousands of page of labyrinthine rules, remain there, enjoying the virtues of public service?

Answer: No. It’s a revolving door, where they stop by just long enough to go on to a high paying job in the private sector, explaining, interpreting, and lobbying for the very institutions they once purported to regulate.  It’s called “regulatory capture,” and it makes hypocrites out of those public servants who regulate today the very sector they intend to serve tomorrow.[2]

According to an August 2014 article by the Washington Examiner [“Revolving door at regulator CFPB enables former bureaucrats to cash in at taxpayers’ expense”]:

 Plenty of other CFPB officials have cashed out. Ronald Rubin was an enforcement attorney in the Fair Lending division. Now he’s at the law firm Hunton & Williams, where he “focuses on CFPB and SEC enforcement investigations and litigation, regulatory examinations, and white collar criminal defense,” according to the firm’s website.

Leonard Chanin was assistant director of CFPB’s Office of Regulations, now he “counsels financial institutions on consumer financial services law issues,” at the law firm Morrison Foerster, according to the firm’s website.

Other CFPB alumni now serving the financial industry include Catherine West at Promontory Financial, John Tonetti at JPMorgan Chase, Bart Shapiro at Offit Kurman, Neil Peretz at BillFloat, and Benjamin Olson at BuckleySandler.

There’s no reason to posit these men and women served anyone but the public while at the CFPB. But it tells you something about government that our public servants were so well-served by creating new regulations.

Hmmm. Quite the Machiavellian Business Model: Regulators Make New Regulations; New Regulations Make More Complexity; More Complexity Means More Work For The Private Sector; Regulators Go To Work For The Private Sector For More Bucks.   And exactly how does this help the Little Guy?  ~PCQ

[1] The sordid and likely illegal method of his recess appointment is explained here. Eventually, with Democratic maneuvering in the Senate, Mr. Cordray was confirmed on July 16, 2013. That was when the Senate had a Democratic majority….

[2] I used to see this in the District Attorney’s office.  As prosecutors, they were zealous in getting the bad guys off the street – until they opened their own criminal defense practice, and then became zealous in getting the perps back on the street.