In my Heritage Foundation Legal Memorandum published yesterday, I call for elimination of the Consumer Financial Protection Bureau (CFPB), on constitutional and economic policy grounds. As I explain:
The new Consumer Financial Protection Bureau (CFPB), created by the Dodd–Frank Wall Street Reform and Consumer Protection Act, is living up to its billing as one of the most powerful—and unaccountable—federal agencies ever created. After just 18 months—and with a staff exceeding 1,000 and funding of $600 million—the bureau is restructuring the mortgage market; devising restrictions on credit bureaus, education loans, overdraft policies, payday lenders, credit card plans and prepaid cards; and amassing unverified complaints with which to assail creditors and bankers. This inordinate control over consumer finance is constraining credit and harming the economy. . . .
The bureau was designed to evade the checks and balances that apply to most other regulatory agencies. Its very structure invites expansive rulemaking, as does its misappropriation of the emergent theory of behavioral economics that drives bureau decision making. It deems consumers prone to financial irrationality and thus ill-equipped to act in their self-interest. Consequently, the CFPB is compelled to intervene in consumers’ personal financial transactions.
Government interference in the financial market does not come without consequences. In the case of the CFPB, the rule of law is being supplanted by regulatory whim, producing deep uncertainty in the consumer financial market. And, the new regulatory strictures will increase consumers’ costs and reduce consumers’ choices of financial products and services.
Lawmakers must curtail the bureau’s unconstrained powers. Outright elimination of the CFPB is the best option. Consumer protection can be advanced instead through better coordination among [other existing and more accountable] financial regulator[y] [agencies]. Proceeding toward bureau dissolution, bureau funding should be controlled by Congress, and the vague language of the CFPB’s statutory mandate must be tightened to stop bureaucrats from defining—and expanding—their own powers.
In sum, elimination of the CFPB, accompanied by reallocation of its essential functions to other agencies and the paring back of excessive financial services regulation, would promote a sounder economy and greater constitutional accountability.