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The CFPB's Ironically Complicated Regulations

Carson Bruno and Anthony Randazzo
August 3, 2011, 4:00pm

The Consumer Financial Protection Bureau launched last month, without a confirmed director and with a slew of legislation attempting to fix its broken structure getting passed out of the House but stalled in the Senate. Sure, the world didn't end, but the threat to businesses and consumers from this agency that runs the risk of protecting them to death is still real. The CFPB website is now completely live, taking comments on regulations and disclosure form revisions, providing opportunities for consumers to vent about their bad experiences with lenders, and creating the guise of transparency. However, something is a little ironic-"don't you think"-about the CFPB's financial disclosure form rally cry compared with its own public notices.

Taking a line straight from the 1990's pop sensation Alanis Morissette, the CFPB has been arguing for simplicity and readability in financial disclosure documents since the Dodd-Frank Act created the bureau, yet if the average consumer were to go online to review and comment on one of the CFPB's proposed rulings, they find a document equally, if not more, horrendously complex than a credit card contract.  "Isn't it ironic," we do think!

Treasury Secretary Timothy Geithner commended Elizabeth Warren and the CFPB's actions to "simplify mortgage and credit card disclosures." During a House Oversight Committee Hearing, Elizabeth Warren, multiple times under oath, referred back to her and the CFPB's mission to ensure every consumer could fully comprehend disclosure forms. Warren insisted the CFPB's core mission was to enable all consumers to answer two basic questions, "Can I afford this and is this the best I can get?" 

The ironic thing about the CFPB is that the CFPB does not even follow what it preaches.  They demand simplicity and clarity from banks and other lenders, but their proposed rulings are neither simple nor clear.

Take a gander at the CFPB's notice and comment section of their website (see here) and click on their proposed rulings open for comment. As of July 28, there are two rulings open for comment: Alternative Mortgage Transaction Parity Act and Defining Larger Consumer Financial Product/Services Participants.  Both of them require intense scrutiny and understanding of laws, regulations, and economics, not to mention sheer will power, to read and comprehend the proposals. The first proposed ruling is 19 pages-with text in three columns on each page-of convoluted small-print legal sentences. Basically sounds like your credit card contract or mortgage disclosure form, doesn't it?  

If you were to put the CFPB proposed ruling and a credit card agreement side by side and removed the titles at the top, it would be hard to differentiate between them. The CFPB wants the average consumer to be able to read forms they receive from banks, but not proposed CFPB rulings and regulations. That's not exactly transparent or fair and is a little ironic. 

Of course, the CFPB is doing exactly what all the other federal agencies do when issuing proposed rulings. The style and wording is identical to all others. And it is actually not a problem. There are a lot of legal matters that have to be properly worded. And to make that print larger font could triple the size of the document (just think of the trees!) Sometimes there are certain legal necessities that require a smaller print document with terms not accessible to everyone on a first glance. 

If the CFPB wants to defend itself on "that's what everyone else does" terms then their arguments against the banks fall apart. If they want to clarify that legal terms are necessary to ensure accuracy and protect against potential liabilities, then we ask why can't financial firms do the same? If the CFPB insists on simplicity from banks, they should lead by example if they truly wish to serve the average American consumer.   

For more on this topic check out other recent Reason posts regarding the CFPB's true motivations, Richard Cordray's past, and the problem with financial protection regulation.  


Anthony Randazzo is Director of Economic Research


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