- - Thursday, April 30, 2015

ANALYSIS/OPINION:

Last week the House of Representatives passed H.R. 1195, a bill that would create a small business advisory board to oversee the actions of the Consumer Financial Protections Bureau. While the bill is a small step in the right direction, President Obama has announced he is warming up his veto pen should the legislation reach his desk.

Reining in the power of this unaccountable regulatory giant is overdue. While the CFPB attempts to serve as a Robin Hoodesque organization defending “victims” of the marketplace, one has to ask: Would Robin Hood be a hero if he stole from the rich but made it near impossible for the poor to benefit?

While the CFPB boasts that it is the country’s “only Federal agency whose sole focus is protecting consumers in the financial marketplace,” a closer inspection of the self-congratulatory claim reveals how far the bureau has missed the mark. The House Oversight Committee previously found that the CFPB’s “heavy-handed regulations” have made “borrowing more expensive and credit less available” for consumers. While CFPB supporters defend the bureau with anti-corporate talking points, they consciously ignore how the costs imposed by the CFPB have trickled down to Main Street.

The regulations enacted by the CFPB have had severe consequences for low-income households. House Financial Services Committee Chairman Jeb Hensarling recently noted that the CFPB’s “Qualified Mortgage” rule, “makes it harder for low- and moderate-income Americans to buy a home. According to a Federal Reserve study, roughly one-third of African-American and Hispanic borrowers would not be able to obtain a mortgage based solely on the CFPB’s debt-to-income requirements.” Additionally, a Federal Reserve survey found that “banks are granting fewer loans because of new mortgage rules” enacted by the CFPB.

The House Oversight Committee reported that estimates show “the CFPB has increased the cost of consumer credit by a total of $17 billion,” far more than the $4 billion in “redress and relief” that the CFPB claims it has provided to consumers. Gee, thanks for the help. It is strange to consider how the CFPB passes itself off as a “protection agency” while causing consumers to shell out billions more in order to obtain a loan.



For the CFPB, the real goal of “protecting consumers” essentially amounts to shaking down businesses whose practices it doesn’t agree with. It is merely another arm of government to be used against American companies, and oftentimes, for entirely illegitimate reasons. Just this year, the CFPB claimed that lenders were discriminating against female borrowers and minorities when they were offering auto loans. But since federal law prohibits auto lenders from collecting or recording racial demographic data for applicants — it’s impossible for the CFPB to produce any evidence to back up this claim.

Embarrassingly, the CFPB had simply guessed the race and ethnicity of the borrowers it used to draw its conclusion on auto lending practices. A study by the American Financial Services Association found that the CFPB’s method for guessing African-American borrowers was accurate less than 25 percent of the time. The CFPB also imposed a $98 million fine against Ally Financial, alleging racial discrimination even though there are no records or requests of racial information on its loan applications.

While the CFPB has proven itself to be inept at crafting financial regulations, it also operates outside the traditional system of checks and balances, which enables it to continue functioning inefficiently. The CFPB is funded directly from the Federal Reserve, allowing the bureau to sidestep congressional scrutiny over its finances and much of its practices. The bureau is also unaccountable to the judicial courts specified under Article III of the Constitution, which allows the CFPB to act as judge, jury and executioner of a business’s finances.

The CFPB is a perfect example of an unnecessary and redundant federal agency. Keep in mind that before the CFPB was born out of the Dodd-Frank Act, consumers already had relief systems available to them if they felt they had been defrauded or treated unfairly, including filing class-action lawsuits with other consumers. That’s what the civil court system is typically used for when there are causes for action. While the CFPB is dictating its view of sound financial practices to others, Watchdog.org reports the agency’s recent renovations on its Washington, D.C. office went $120 million over budget. Res lpsa loquitur (the thing speaks for itself).

Rick Berman is president of Berman and Co., a Washington public affairs firm.

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