OPINION:
The housing crisis and subsequent financial crisis of 2008 were largely caused by politicizing loan eligibility criteria and advancing social justice objectives over sound economics. Unfortunately, the Dodd-Frank Wall Street Reform and Consumer Protection Act added even more politicization by creating the Consumer Financial Protection Bureau, which has raised costs and pushed many financial services beyond the reach of the consumers it purports to protect.
The CFPB was the brainchild of Sen. Elizabeth Warren and the top demand of the liberal advocacy groups. It was funded, ironically, by the billionaire inventor of toxic subprime negative-amortization mortgages, Herb Sandler, and was designed to be the federal government’s most powerful and unaccountable bureaucracy. All power was concentrated in one director with a fixed five-year term and not subject to removal by the president. There was no budgetary oversight from Congress, with the agency funded by Federal Reserve profits, and no meaningful limits on what it could regulate.
Fifteen years later, we can judge the CFPB by its results. According to the Federal Deposit Insurance Corp., the number of banks in America has plummeted from 7,500 to 4,500, with regulatory compliance costs falling disproportionately on smaller banks forced to merge with the big guys or go out of business. The Federal Reserve Bank of St. Louis calculated that small banks have triple the regulatory compliance burden of big banks.
So much for punishing Wall Street.
CFPB’s mortgage disclosure rules haven’t made buying a house any easier or less financially risky, but they have added to the pile of paperwork and substantially increased closing costs. For instance, the $25 billion “robo-signing” settlement sent at most 6% of the total proceeds to victims. Probably less. The settlement resulted in many mortgages sold to non-banks with incompetence and little expertise.
A lot of the money CFPB collects in fines and fees ends up in a slush fund called the Civil Penalty Fund to be funneled to left-wing social justice groups.
The agency even tried to do the one thing Congress expressly prohibited: regulate auto lending. During President Trump’s first term, a Congressional Review Act resolution overturned this bizarre and costly regulation. Still, it was an early example of weaponized wokeness, using a computer model to guess the race of borrowers based on their last names and ZIP codes and then punishing auto dealers for computer-simulated racial discrimination.
Under President Biden, the CFPB kicked its regulatory activities into hyperdrive. The bureau banned arbitration clauses to open vast opportunities for trial lawyer class-action lawsuits. It banned short-term lenders from setting up automated repayments, adversely affecting short-term loan availability. This forced people who could no longer qualify for loans to overdraw their checking accounts instead or incur credit card late fees. Then, it tried to regulate overdraft fees and credit card late fees.
This chain of regulating everything might sound good until you realize this is precisely why small banks are disappearing and big banks are increasingly adding fees to everything. Good luck finding a free checking account if you don’t have a hefty balance. The result is a two-tiered banking system, and those struggling financially are denied access to more critical financial services.
Fortunately, the CFPB’s unaccountable structure is also its Achilles’ heel. In 2020, the Supreme Court ruled that the provision saying the president can’t fire the CFPB director is unconstitutional. Mr. Trump has swiftly fired Mr. Biden’s director, Rohit Chopra, and installed Russ Vought as the interim director.
The lack of any funding from Congress allowed Mr. Vought to inform the Federal Reserve that the agency’s funding draw for next quarter is zero dollars. Economist E.J. Antoni points out that since the CFPB is supposed to be funded by Fed profits and the Fed has been operating at a considerable loss, the agency legally must be zero-funded. So, Mr. Vought is on firm ground.
Congress should also do its part, ideally by formally repealing the agency, but Democrats are likely to filibuster. What they can’t filibuster are Congressional Review Act resolutions, which are privileged and can permanently repeal the agency’s most expensive and destructive midnight regulations from last year. Whatever rules Congress doesn’t repeal, Mr. Vought should formally rescind — and then close up shop.
• Phil Kerpen is president of American Commitment and the Committee to Unleash Prosperity.
