The Dodd-Frank financial reform bill turned 5 years old this week, and conservative Republicans, who didn't like the measure in the first place, predictably have been withering in their scorn. Perhaps not coincidentally, so have big bankers and the U.S. Chamber of Commerce.
They've all reserved some of their harshest words for the Consumer Financial Protection Bureau, that brainchild of Sen. Elizabeth Warren (D-Mass.), who conceived the agency before running for office. (Warren was originally penciled in as the bureau's director; that was quashed by Wall Street, which may regret its opposition now that she's in a position to hector financial executives as a U.S. senator.)
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has been the CFPB's most relentless critic. "The CFPB undoubtedly remains the single most powerful and least accountable federal agency in all of Washington," he said, which is an exaggeration on a Trumpian scale.
Presidential contender Sen. Ted Cruz (R-Texas) just this week introduced a measure to abolish the CFPB outright. He called it "a runaway agency" that "does little to protect consumers." Abolishing the CFPB, Cruz said, would give Congress "the opportunity to free consumers and small businesses from the CFPB's regulatory blockades and financial activism, which stunt economic growth."
If you think that sounds a bit like getting government off the backs of the people so big business can saddle up, you may be right. So let's try to weigh what the CFPB has accomplished against what its critics say are its flaws. In its own defense, the agency says it has brought more than $10 billion in relief to consumers through refunds and reduced fees.
As Mike Konczal of the Roosevelt Institute has observed, "The CFPB is operating, as intended, as a 'cop on the beat' whose sole focus is to aggressively seek out instances of anti-consumer malfeasance." Because so much consumer fraud tends to fall into the cracks between other regulatory agencies, the CFPB has cast its net wide. It has targeted not only mortgage abuses -- of the type that helped bring down the entire economy in 2008 -- but credit card issuers, credit reporting agencies (the source, according to CFPB director Richard Cordray, of 11% of all complaints to his agency) and for-profit colleges.
Some of these businesses have their talons implanted deeply into the torsos of our elected representatives in Congress, so it's unsurprising that they grouse about the agency's activities.
But the specific complaints of critics such as Hensarling and Cruz need to be put in perspective. Hensarling, for instance, complains that the CFPB's clampdown on mortgage issuers has knocked minorities out of the housing market. The agency's rules will mean that "one-third of all blacks and Hispanics" will "no longer be able to buy the homes that they have traditionally been able to buy," he asserted last year. "We are protecting them out of their homes!"
That's fascinating, because Hensarling used to take the other side of the argument -- asserting in 2009 that "federal policies to promote lending and expand homeownership" had distorted the housing market, contributing to the housing crash and the economic crisis.
Hensarling pointed his finger at those traditional bugaboos, the Community Reinvestment Act and Fannie Mae and Freddie Mac. He said "properly underwritten risk-based pricing" of mortgages would help low-income people buy homes. His problem today is that those standards are exactly what the CFPB is trying to enforce through its rules governing mortgages.
As for Cruz, his assertion that the CFPB does little to protect consumers was sadly undermined the very same day by its announcement of a $700-million settlement with Citibank. The CFPB said the big bank had bilked up to 8.8 million customers through "deceptive marketing, billing, and administration of debt protection and credit monitoring add-on products" and through "deceptively charged" payment fees.
Does Cruz think economic growth will soar if only Citi and its friends are again allowed to run roughshod over their customers?
The best sign of the shallowness of the attack on the CFPB is its focus on ancillary issues, such as the agency's supposedly profligate office renovation. This claim is based on a wildly distorted report by the Federal Reserve's inspector general, which tracked what was ostensibly an increase in the renovation cost from $40 million in 2010 to nearly $150 million by 2013. Hensarling used these figures to accuse the CFPB of building a "Taj Mahal" inside the beltway.
Well, not really. As the inspector general stated, the much needed work is a renovation of a building that has been occupied by federal agencies for years. The earlier figure was for "year one" of a 10-year project, and the later figure is for the whole project -- including, unlike the original figure, architectural and engineering expenses, construction management and fees to the government's General Services Administration, which will actually oversee the work.
The inspector general debunked the Republican's claim that the renovation would cost more than "the annual construction and acquisition budget for all federal buildings." That was cherry-picking, the report found -- it compared the cost of a multiyear renovation to the government's construction budget for 2013, an "anomaly" year in which that budget was one-twelfth of the 10-year average, and left out the budget for building repairs and alterations, which is sometimes double the construction budget.
The CFPB may not be perfect -- what government body is? -- but the truth is that it fills a critical gap in economic regulation. As Adam Levitin of Georgetown Law School wrote when the agency was still on the drawing board, consumer protection then was an "orphan mission" that conflicted with the duties of the existing financial agencies to protect bank soundness, and no agency had "developed an expertise in consumer protection in financial services."
Hensarling, Cruz and other such critics of the CFPB want to return us to that world. Who would that benefit, other than the banks and the promoters of financial snake oil?