A CFPB Political Deal

The Richard Cordray nomination to head the CFPB may have created a political opportunity.

From our perspective, the CFPB is a bad thing. It is well-intended in theory (other than Elizabeth Warren’s vindictive attitude towards the banks) but winds up hurting consumers more than helping them. We’ve highlighted some examples on this blog, but the stand outs are how attempts at lowing credit card interest rates, curbing overdraft fees, and limiting swipe fees have wound up reducing access to credit, particularly for low income borrowers (hurts the consumer), and have caused free services like no-cost checking accounts, ATM fee reimbursements, and cash back rewards programs to all become things of the past so that financial institutions can cover the lost revenue (hurts the consumer).

So the CFPB needs to go and better enforcement of rules againts fraud and deception be put in its place. The best way to do that is to pull back on CFPB powers and limit its funding (and yes, I’ll state it plainly like that, we can have an open discussion without playing political games).

One thing that might happen is the White House offer to trade some of the GOP demands on the CFPB for accepting Cordary. For instance, the GOP has been pushing for a commission leadership panel like other regulatory bodies. And the GOP wants CFPB to be subject to the approprations process. They might offer those two changes in CFPB structure in exchange for accepting Cordray as the new director or head commissioner.

Politically this would be smart by the Democrats. Sure, a commission would take power away from a dictator-like leadership structure and mellow out the intensity of the institution. However, one day a Republican will reclaim the White House and get to appoint the CFPB director, a which point who knows what will happen to their cherished agency. The commission structure helps Dems in the long run.

As for the money, it is undeniable that giving the CFPB claim on up to 12% of the Federal Reserve’s budget lacks accountability. To say it keeps them away from the political process is narrow-minded. Whether they are linked to Congressional appropriations or not they will be politically motivated and influence. They are in Washington DC after all. The GOP would like to gut their budget, so the Dems run that risk. But if the Dems really believe that they will be helping consumers they should be able to make the case for how the money is being put to a good purpose when defending a CFPB budget proposal.

So by yielding here the Dems get their man, they get their agency, and the GOP gets their political win.

But what about the consumers? They still have to put up with the CFPB. They are still going to be protected to death. And businesses are still going to be arbitrarily hamstrung by bureaucrats in Washington who have no respect for private enterprise. There is no real victory in this kind of compromise other than a purely political one.

What might be a better approach? Well the theory is that the consumers are going to be hurt in the long-run by the CFPB with or without a director. What if the GOP just let Cordray in? And the CFPB be as powerful as it wanted to be? Over the next several years consumers will see their free checking accounts disappear. They will have their options to mortgages limited. And individuals looking for quick cash to fix their broken truck will be out of luck because the payday lender they used to depend on was shut down by kindhearted souls in Washington.

In short, the CFPB will make a the case against themselves by themselves. And they won’t be able to say, “Well, things would have gone well if not for meddling by the Republicans.” The full experiment is on.

The down side of this of course is that consumers get hurt in the process. Those would be real people not being able to get to work because they couldn’t get a loan to fix the alternator in their truck and then lost their job for being tardy. The question is whether or not a commission and narrower budget would actually stop the CFPB from doing this stuff because they are rolling along in such a way that they can’t be stopped.

The political opportunity here is whether or not to let the CFPB have its full experiment, or to try and trade Cordray for some changes in the structure to try and save some consumers from the new bureau itself. Not a fun place to be in.