Out of Control Policy Blog

Whose Side is the CFPB On?

This morning's House Oversight Committee hearing about the Consumer Financial Protection Bureau (CFPB) wasn't exactly a firework show, but it did confirm where the battle lines are being drawn.

In the hot box today was Elizabeth Warren, mastermind and de-facto director of the CFPB. Last time she was in front of this committee decorum broke down with the witness and chairman trading verbal jabs like children on a playground. This time around Democratic Congressman attempted to redirect the discussion away from the CFPB's authority and delay Warren from having to answer questions. Meanwhile the Republicans continued to hound the very elusive Warren on the scope of CFPB's powers.

Warren stuck to her guns, saying simply that the CFPB will target payday loan lenders, wants to eliminate current financial institution "trick, traps, and surprises," and plans to be on the front line to supervise and enforce existing and new laws and regulations. Beyond this there were few details as Warren clearly had no intention of giving straightforward answers. For instance, Warren refused to answer “yes or no” to a simple question by Rep. DesJarlais (R-TN) regarding whether the CFPB does or does not have jurisdiction over those individuals subject to Farm Credit Administration regulation.

But perhaps the most interesting question of today's hearing was the one repeated by Democrats throughout the proceedings. Trying to embarrass Republicans and divert attention away from Elizabeth Warren they kept asking, "Whose side are we on?"

Exactly—whose side is the CFPB on?

Most in Congress don't have an issue with the CFPB's quest for clearer, more understandable financial documents and disclosures. As Rep. Buerkle (R-NY) alluded to this morning, everyone agrees that certain illegal actions occurred, restitution for victims is necessary, and financial documents should be streamlined.  However, you don't need a multiple thousand employee, $500 million agency to supervise and enforce transparent disclosure documents.

Instead, if you boil down the vague role the CFPB has under the Dodd-Frank Act and the broad role Elizabeth Warren and her deputies envision for the CFPB, the agency will be doing very little to protect the average American consumer. When was the last time an over-burdensome government agency made your life easier? If in the past few months you've had free checking or other perks rolled back at your local bank, if you've found it harder to get credit or faced higher credit card rates, if you were used to rewards points with some financial product that now is being repealed then... you have recently enjoyed CFPB-style "consumer benefits."

These "benefits" are the result of various rules restricting debit card and credit card transactions that have sprinkled in over the past two years. While they weren't directly CFPB rules, they are the types of rules the CFPB plans to perpetrate.

Elizabeth Warren claimed that she will be trying to lower compliance costs for businesses, but the very nature of regulation and enforcement always increases the compliance costs. And businesses do not just swallow those costs—they get passed along to the consumer. 

For example, seamlessly simple regulations on payday loan lenders have massive repercussions for Americans, especially the poor. If CFPB regulations mean payday loan lenders cannot charge appropriate interest rates, then they cannot recoup their default losses and will go out of business.  If payday loan lenders go of business, the poor—who disproportionally depend on payday loans—will not have the necessary funds to purchase groceries and medicines or pay their car loans. What affects businesses will definitely affect the American consumer and homeowner.

The impact of regulatory handcuffs is not just hypothetical at this point anymore. New debit card rules have already made it impossible for convenience store chain QuikTrip to continue their gas perks program. A spokesman for the company said yesterday, "We would prefer to give the money that we [would have had] to pay on interchange fees back the customer directly on a discount on gasoline." But because of the regulation killing that product, those American consumers once benefiting from the program will now pay higher gas prices. 

Yes, the rules are intended to help, but it is the unintended consequences that we must judge. As my colleague Anthony Randazzo wrote back in 2009 in warning about the dangers of a CFPB, some of the Warren creation stems from noble ideas, but they are going to "protect us to death."

So, whose side is the CFPB on? Publicly, Elizabeth Warren and her Democratic allies will continue to insist they are on the American consumer's side, but realistically they are just on their own side—working to ensure additional government regulation and their own relevance.


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