The Trump administration has nominated Kathy Kraninger to be the next director of the Consumer Financial Protection Bureau, and Roll Call reports that her confirmation hearing was “as politically contentious as it’s gotten in the last year and a half” on the otherwise “senatorial Senate Banking Committee.”
Ignore the political drama. The real story is the fact that the bureau has been making some very positive changes under acting Director Mick Mulvaney, a founding member of the House Freedom Caucus.
To be clear, the bureau should not exist. It was created based on the false premise that there was insufficient consumer protection law prior to the 2008 crisis, and that evil lenders preying on unsuspecting borrowers caused the mortgage meltdown. Mortgages are not, despite Sen. Elizabeth Warren’s claims, anything like faulty toasters, and more than 20 federal consumer financial protection statutes existed prior to 2008.
Furthermore, the crisis itself was caused by too much government, not too little.
Congress should never have created a new federal agency, much less one with the bizarre (possibly unconstitutional) structure that it gave the CFPB. At best, Congress should have consolidated authority for the 20-plus federal consumer financial protection statutes that existed prior to 2008 at the Federal Trade Commission, the federal agency already charged with consumer protection.
The Trump administration cannot, of course, get rid of the bureau or transfer authority to the FTC without congressional action. It can, however, appoint a new director—for a five-year term thanks to the short-sightedness of the Democrats—to build on what Mulvaney started.
Here is a list of seven recommendations for the next director of the CFPB.
- Entrench the bureau’s new Office of Cost-Benefit Analysis. In May, Mulvaney announced that the new office would be housed in the director’s office, and that it would be modeled after the FTC’s Bureau of Economics. That FTC unit has been instrumental in ensuring that the FTC “avoided government overreach” and acted in a manner “conducive to enhancing marketplace efficiency and consumer welfare.” Under former Director Richard Cordray, the CFPB undertook a decidedly anti-market place agenda. It was clear data-driven analysis did not drive the bureau.
- Ensure the bureau does not go beyond its statutory authority. In January, Mulvaney announced that “The CFPB has a new mission: We will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate. But we go no further. The days of aggressively ‘pushing the envelope‘ are over.” (One of the best examples of pushing the envelope was the bureau’s attempt to regulate car dealers even though Dodd-Frank explicitly forbids it.)
- Embed and expand the new Office of Innovation. The U.S. regulatory structure has hampered the financial technology (fintech) sector, making other countries more attractive for financial companies that create new innovative products and services. The U.K., for instance, has streamlined its regulatory process and taken the lead in helping fintech companies innovate without running afoul of unclear outdated rules and regulations. In July, Mulvaney created the Office of Innovation at the bureau “to focus on encouraging consumer-friendly innovation.” This new office could—and should—play a vital role in building “an environment where companies can advance new products and services without being unduly restricted by red tape that belongs in the 20th century.”
- Revisit the Payday Lending Rule. Under Cordray, the bureau issued a massive rule to regulate small-dollar lenders even though only 2 percent of the complaints lodged with bureau dealt with payday lending. Worse, the bureau’s own research suggested the new approach could wipe out up to 85 percent of the loans these lenders currently make. This rule is not consumer friendly. Under Mulvaney, the bureau has announced it will revisit this rule, and a new director should ensure that this process moves forward. In fact, revisiting this rule should be one of the highest priorities for the new Office of Cost-Benefit Analysis.
- Continue expanded outreach efforts. In June, the bureau announced it was starting the “process of transforming the Bureau’s Stakeholder Outreach and Engagement work, which includes transitioning from former modes of outreach to a new strategy to increase high quality feedback.” This expanded effort includes “regional town halls, roundtable discussions at the Bureau’s headquarters with consumer finance experts and representatives, regional roundtables, and regular national calls.” This outreach has given groups previously shut out of the bureau a voice on regulatory matters, a trend that should continue.
- Maintain the end to “regulation by enforcement.” Mulvaney initiated a shift toward more formal rulemaking and less regulation via enforcement actions. One such example was the bureau’s 2017 warning to reverse mortgage professionals against using the loans to defer Social Security payments in retirement. It only makes sense that companies should have the chance to know what the law is before they’re accused of breaking it, so this shift away from the CFPB making up rules as they go along is clearly a positive trend.
- Safeguard data collection. Critics have frequently raised privacy and security concerns over the bureau’s database of consumer transactions, as well as fairness concerns over the bureau’s complaint database. In May, Mulvaney placed a temporary hold on “the collection of personally identifiable information and other sensitive data,” and an independent review later determined the external-facing systems appeared safe. Mulvaney has also expressed concern that making unverified complaints public is harmful to companies providing financial services. A new director should ensure that unverified complaints are no longer made public and that the bureau only collects data as statutorily required.
The bureau was created with a clear bias against financial services companies. The agency’s architects seem to believe that this bias made the agency consumer friendly, but such a view ignores the fact that businesses can only succeed by making their customers happy.
There is no doubt that Americans did not need—and do not need—this government agency. As long as they’re stuck with it, though, the bureau should be consumer friendly by working to benefit all Americans, even those that make loans.
