Republicans Take Axe to Effective Regulation

Earlier this month, House Republicans passed the Financial CHOICE Act after hours of debate. This piece of legislation, passed along a party-line vote of 233-186, seeks to derail most the 2010 Dodd-Frank Wall Street reform law. Only one Republican in the House voted against the bill—North Carolina Republican Walter Jones. Dodd-Frank was one of the signature achievements of then-President Barack Obama. One of the major aspects of the bill was the creation of the Consumer Finance Protection Bureau. Since its inception, it has been an effective watchdog that protects consumers from fraud in lending by financial service providers. However, the Financial CHOICE Act seeks to roll back the Bureau’ ability to regulate and enforce rules against banks. This effort to reduce regulation and eliminate agencies created by the 2010 Dodd-Frank law is the wrong approach for the country.

The Consumer Financial Protection Bureau has been highly effective at providing relief to consumers that were the victims of fraud by the big banks. In totality, the CFPB has collected nearly $12 billion through the supervisory and enforcement work of the bureau. This amount includes $ 3.7 billion in compensation to consumers as a result of the bureau’s enforcement of laws and regulations. There have also been $7.7 billion in principal reductions on loans, cancelled debts, and other consumer relief as a result to the agency’s efforts. As a result of litigation filed on behalf of consumers, the CFPB has collected $589 million in civil penalties levied against financial institutions in violation of the law. Over 1,080,000 complaints have been handled by the CFPB. A total of 29 million consumers have benefitted from the enforcement of the CFPB.  The CFPB is in the process of establishing rules to protect consumers from the harmful collection practices of predatory lenders. More than 4.4 million mortgages closed with consumers knowing the rules of the road through the CFPB’s “Know Before You Owe” disclosures. Over three thousand colleges and universities have voluntarily adopted the CFPB and Department of Education’s Financial Aid Shopping Sheet. This is a stellar record of achievement, and this is what worries the backers of the Financial CHOICE Act. 

The Financial CHOICE Act changes the name of the CFPB to the “Consumer Law Enforcement Agency." The law also charges the agency with the duty of protecting consumers and maintaining competitive markets. Each regulation promulgated by the agency is subject to cost-benefit analysis by the new Office of Economic Analysis. This poses several problems. First, there could be significant inaccuracies in identifying and quantifying costs and benefits. Then, there is the subjectivity of perceived costs and benefits.  There is also the potential for inaccurate calculations of present value leading to a misleading analysis. Any of these errors could shelve a potentially beneficial regulation going on the books. The law also restructures the agency into an Executive Branch agency with a single director removable by the President at will. This will politicize an agency with a nonpartisan and apolitical goal of protecting consumers. It also strips the Bureau of its supervisory function, and it strips the agency’s “unfair, deceptive, abusive acts and practices” (UDAAP) authority. This bill further neuters the CFPB by eliminating the bureau’s sweeping market-monitoring function. 

The Republicans’ intentions are clear. They want to roll back the progress made by the Obama administration to protect consumers from unfair and deceptive practices used by financial service institutions. This act goes hand-in-hand with President Trump’s effort to roll back regulations of any kind. This is the wrong approach. While a strategic review of regulations is always a healthy move towards good governance, dismantling useful agencies is an unnecessary and draconian step. The Senate must rebuff any effort to scale back this highly effective agency and affirms its mission.  

James Nickerson is a Senior Editor at Sojourn Review. You can follow him on Twitter here.