Monday, November 20, 2017

I Was An Aide to Barney Frank and Helped Him Create a Regulatory Monster

By Dennis Shaul

Richard Cordray’s resignation as director of the Consumer Financial Protection Bureau provides a great opportunity for President Trump to appoint a new director who can undo an unfortunate legacy of bureaucratic overreach and political bias. More important going forward is what we have learned from our experience with the CFPB to prevent future similar missteps.
The first lesson is that Congress should never again create an “independent” agency with a sole director, particularly one not subject to the congressional appropriations process. Under the law, the CFPB—unlike the Securities and Exchange Commission, the Federal Communications Commission, the Federal Trade Commission and other independent agencies—is funded by the Federal Reserve, a move specifically designed to avoid congressional oversight.
I had the
privilege of working as an aide to then-Rep. Barney Frank, chairman of the House Financial Services Committee when the Dodd-Frank Act of 2010, which created the CFPB, was written. I realized that no bill is ever perfect and the CFPB would have its imperfections. The authors wanted the bureau to be a fair arbiter of protecting consumers, instead of what it has become—a politically biased regulatory dictator and a political steppingstone for its sole director, who is now expected to run for governor of Ohio.
An independent federal agency should be nonpartisan. A bipartisan commission on the model of the SEC and FCC would allow for better and more evenhanded decision-making. To show how partisan the CFPB became under Mr. Cordray’s leadership, not one of the agency’s employees made a contribution to Donald Trump’s campaign, while a multitude contributed to Hillary Clinton. The new director will have a partisan staff.
A commission can oversee a professional staff and also provide for better decision-making, preventing some of the missteps and overreach we’ve seen with the CFPB. For example:
• The bureau took full credit for punishing Wells Fargo for opening false customer accounts. But the Los Angeles Times, not the CFPB, uncovered the malfeasance. More important, the CFPB fined Wells Fargo only $100 million, based on an incomplete investigation that found 2.1 million customers were affected. The actual number turned out to be 3.5 million. Meanwhile, large banks, including Wells Fargo, were fined tens of billions of dollars for toxic mortgages in the financial crisis. A threshold question is whether one person, in this case the director, should have the power to levy such fines.
• Even though the Dodd-Frank Act expressly prohibits the CFPB from regulating automotive finance, the agency jumped into the field, alleging discrimination in auto lending. Because federal law prohibits auto lenders from gathering information on race, the agency had to guess at its claim of discrimination based solely on names and ZIP Codes, which the agency itself admitted as flawed and which one observer described as the equivalent of a student guessing on every answer on his SATs. The agency then went ahead with guidance that raised the costs of an average auto loan by an estimated $600.
• Immediately after it opened its doors, the bureau began to create a true bureaucracy and quickly attracted staff, often by paying higher salaries than those at other regulatory agencies. Many of its examination procedures are duplicative of other financial regulators, and no thought was given to how that could have been avoided.
• The CFPB, like other agencies, collects fines and fees. Astonishingly, Congress does not require them to be transferred to the federal Treasury. Mr. Cordray has boasted of collecting billions of dollars on behalf of consumers, but portions of that money ultimately go to favored consumer groups—a continuing problem of ideological preference.
Read the rest here.

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