As if hyperactive Washington politicians haven't already grabbed enough power by taking over banks and car companies and trying to control everybody's health care, now they are getting closer to centralized bureaucratic control of the entire consumer credit market. Pending legislation to create a superpowerful Consumer Financial Protection Agency (CFPA) would take an ax to financial freedom and significantly increase consumer costs.
That's not what most people would call "protection."
The bill already has made it through the House Financial Services Committee, chaired by Rep. Barney Frank, Massachusetts Democrat. It is expected to reach the House floor shortly after Thanksgiving. However, because so much attention has been focused on health care, this threat to consumer freedom has evaded the greater public scrutiny it deserves.
Rep. Jeb Hensarling, Texas Republican, has led opposition to the bill. In a July 22 Op-Ed column in this newspaper, he wrote: "H.R. 3126 would create a new bureaucracy run by five unelected individuals appointed by the president. ... This agency would possess sweeping powers to ban or modify any home mortgage, credit card, personal loan or other 'consumer financial product' it subjectively deems to be 'unfair' or 'abusive.' If the mortgage that would allow you to be a homeowner is deemed 'unfair,' you'd better find another one. If the credit card you choose for your family is 'abusive,' you might find yourself paying cash."
As the Chamber of Commerce notes in a document detailing its "concerns" about the proposal, the bill contains language that "makes it 'unlawful for any person' to engage in any unfair, deceptive or abusive act or practice. These provisions impose broad liability on anyone - not just a 'covered person' - anytime the CFPA determines that person's conduct is unfair, deceptive or abusive, even if no regulation is in place requiring particular disclosures or prohibiting particular practices."
There is no way for anyone to know what "abusive" means. Under this bill, abusiveness would be in the eye of the regulatory beholder. Lenders and borrowers alike would never know exactly what is and isn't legal.
In an Oct. 7 study, David Evans of the University of Chicago and Joshua Wright of George Mason University showed that the CFPA would badly hurt the economy. The agency "would make it harder and more expensive for consumers to borrow," they wrote. "Under plausible yet conservative assumptions the CFPA would: increase the interest rates consumers pay by at least 160 basis points; reduce consumer borrowing by at least 2.1 percent; and reduce the net new jobs created in the economy by 4.3 percent. By reducing borrowing, the Act would also reduce consumer spending that further drives job creation and economic growth ... [and] slow the recovery from the deep recession the economy is now in by reducing borrowing, spending and business formation."
With so much uncertainty in the economy and so many unprecedented government intrusions already being enacted, now is the time to slow down government's power grab and let the system adjust to the changes already made. The best way for Congress to protect consumers would be to leave well enough alone.