Building on some of the critiques we’ve had of Congressional plans to boost consumer “protection” by establishing increased regulatory oversight for financial products, here is another perspective on problems with a CFPA or CFPB from a new blog called Ostrich Economics:
CFPB’s effectiveness assumes that regulators will be one step ahead of the producers (to keep them from inventing and distributing risky products) and it also assumes that regulators will be one step ahead of consumers (to keep them from buying risky products that slipped through the system). To get an idea for how this would work on a macro scale, I encourage you to remember the most recent consumer protection legislation to become law, the “CARD ACT of 2009.” Despite implementation on February 22, you are still vulnerable the worst of credit abuses. No one is preventing you from carrying a balance on your card with compounding interest. No one is keeping you from opening up multiple credit cards and spending your paycheck before it comes in. No one prevented the credit card companies from hiking up interest before the law went into effect. Get the picture?
Moreover, the CFPB will have serious economic consequences. It will prohibit consumers from choosing which financial products best suit their situation — such as high-interest, low-money down loans. Additionally, the institution itself is costly. The original Consumer Financial Protection Agency (passed by the House) scored at $10B. Who do you think is paying for that? The CFPB is no better. Housed in the Federal Reserve, its expenses are unlimited and will not have to be approved by Congress. Lastly, the unlimited scope of rule-making authority is throwing tar in the gears of economic recovery, requiring resources to be diverted to compliance measures and away from job creating measures.
OE is authored by an anonymous Hill Staffer named “Jane.”
For more on how the Frank and Dodd bills are hurting consumers more than helping them, see this article I wrote in October last year.