Inside Financial Services

The Beginnings of Overreach at the CFPB

Whatever happened to personal responsibility?

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The bureaucrats who run the Consumer Finance Protection Bureau seem to believe that Americans are infantile nitwits too stupid to be trusted to make even the most basic financial decision without help from the federal government.

That’s the conclusion I came to, at any rate, after reading comments from a couple of CFPB bigwigs over the past week. The first comes from Stacy Canan, deputy assistant director of the CFPB’s Office for Older Americans. Canan’s apparently been lying awake nights lately worrying about alphabet soup of professional designations that’s overtaken the investment advisory business. “There absolutely are some financial advisors that are using the designations just for marketing purposes [Marketing! Egad!] and they don’t really have the substantive expertise and training to back up what that designation implies to investors,” she told NPR in an interview on May 7. “Seniors deserve the right to understand whether they’re entrusting their life savings to someone who’s only had a weekend seminar versus spent months or even years of training to learn how to give adequate financial advice.”

I have no idea whether certain advisory designations are fig leaves or not. But even if some are, I have a solution to Canan’s problem. Seniors can ask. “What does it take to become a Chartered Retirement Planner anyway?,” they might say. Or “What’s does becoming a Certified Investment Advisor involve?,” would be another good one. Now that I think of it, a prospective client might have other questions as well, such as about the planner’s prior experience and educational background. She might also ask for references. Back in the days before the CFPB, this sort of preparation was referred to as “common sense,” and Americans were actually pretty good at using it.

But for Canan, that’s not good enough. Her recommended solution to the scourge of so many advisory designations? That the CFPB get involved in setting up standards for their accreditation. Yes, by all means, let’s get the federal government involved. Because seniors need to be protected from these voracious predators masquerading as investment advisors. Or as Canan puts it: “Seniors in particular often mistakenly believe that their financial advisor is looking out for their best interest. That is rarely true.” [Emphasis added.]

Really? Advisors only rarely look out for their clients’ best interest? One wonders how they’ve managed to stay in business. Canan seems to believe that the investment advisory business is simply systematic, organized thievery. Worse, she seems to think consumers are too stupid to recognize that. But not to worry! She’s from the federal government and is here to help.

I’ve got a better idea. How about we assume that consumers are capable of taking personal responsibility for their decisions, and can be expected to make the right ones? Decisions related to one’s finances are among the most personal an individual can make. It’s outrageous that a government agency, the CFPB, is scheming to get involved in them.

But Canan isn’t the only over-activist bureaucrat at the CFPB. There’s also Rohit Chopra, the agency’s “point person” on student loans. Chopra is the author of a recent CFPB report on how to deal with soaring student loan delinquencies. What do you think his recommendations are? Stiffer underwriting requirements to limit future credit problems, perhaps? Putting schools themselves on the hook for a portion of their delinquent graduates’ debt? Of course not! Instead, Rohit’s recommended fix, according to American Banker ($) , is that “private student lenders [should] offer ‘refi relief’ to borrowers who pay on time; lower monthly payments for distressed borrowers; and an option to clean a defaulted borrower’s credit history once they [sic] begin paying a modified loan on time.”

Translation: let’s give more money away, to current and delinquent borrowers alike, basically without condition. If you were foolish enough to actually save up for your (or your children’s) college, or worked your way through school (you stupid sap, you) to pay for it, you’re simply out of luck. And now that you’re a taxpayer, you get to help pay down the debts of your fellow students who knew enough to game the system. Thanks!

The people who run the CFPB seem to have the basic view that under no circumstances should people have to live with the consequences of their own freely made decisions or bear their own personal responsibility. Instead, the government should always be able to intrude itself in people’s lives to “fix” things. The trouble with allowing the government to insert itself into every part of your life is that, well, the government is going to end up inserting itself into every part of your life. There’s a word for that: tyranny. The CFPB tries to portray itself as a paternalistic entity that’s only trying to help people. In fact, it’s bureaucratic monstrosity, funded directly by the Fed, that is accountable to exactly nobody. The ideas that people at the CFPB come up with sound benign enough now. But as they accumulate (and they will, trust me) they’ll seem arbitrary, intrusive, and ubiquitous-and, of course, expensive.. But by then it will be too late. The time to start objecting to the agency’s intrusiveness is now.

What do you think? Let me know!

16 Responses to “The Beginnings of Overreach at the CFPB”

  1. Ole Holsti

    Many bankers constitute the new criminal class. CFPB oversights needs to be tightened before you have another 2007-08 crash brought on by the loony banksters.

  2. Jeff

    Hey. Haven’t we been warned about this already? Something about, “….to each according to his needs, from each according to his ability, ….” (or something like that). I propose we advance the agenda of John Allison (BBT, not HOME) for President!

  3. Ken Greenberg

    What are they up to, 1,000 employees or more? With a director who shouldn’t even be there based on the court ruling negating his recess appointment… but he’s still there. This comes on the heels of them coming up with a 1,000+ page document on how to simplify the mortgage disclosure form – a three page document. Only in DC. Salaries galore plus defined benefit pension plans. A good gig.

    To those who think we need these clowns to regulate the banking industry so we don’t have another financial crisis, here’s the reality check: Congress is guiltier than any bank for promulgating and creating most of the crisis. They just have the bully pulpit, and salivating media, who help them blame everybody else.

    Want lower college tuition? Reel back the student loans. They didn’t exactly help make college more affordable… colleges just raised tuition as students and parents could borrow more.

    For Mark who has been in the mortgage biz for 25 years: remember when everybody had to put 20% and have a debt to income ratio of at least 38%. It was like that forever…. until Congress loosened it up.

    Our Federal government is out of control. There are so many unnecessary layers of bureaucrats, its’ hard to affix blame or fire anyone. Here’s a fascinating stat: in 1800, the year of the first census, we had a population of about 8.8 million people, and the Executive Branch of the Federal government had 125 employees. Fast forward to 2010 (last full year of data) and the population was 310 million. 53.5 times the 1800 pop. BUT, the number of Federal employees in the executive branch ballooned to 2.9 million. So the population grew 53.5 times, but the number of Federal employees grew 21,200 times. Why? They’re in to way too much stuff, in way to many layers.

    Why does the CFPB need more than 10 people? I’m disgusted.

  4. Ken Greenberg

    What are they up to, 1,000 employees or more? With a director who shouldn’t even be there based on the court ruling negating his recess appointment… but he’s still there. This comes on the heels of them coming up with a 1,000+ page document on how to simplify the mortgage disclosure form – a three page document. Only in DC. Salaries galore plus defined benefit pension plans. A good gig.

    To those who think we need these clowns to regulate the banking industry so we don’t have another financial crisis, here’s the reality check: Congress is guiltier than any bank for promulgating and creating most of the crisis. They just have the bully pulpit, and salivating media, who help them blame everybody else.

    Want lower college tuition? Reel back the student loans. They didn’t exactly help make college more affordable… colleges just raised tuition as students and parents could borrow more.

    For Mark who has been in the mortgage biz for 25 years: remember when everybody had to put 20% and have a debt to income ratio of at least 38%. It was like that forever…. until Congress loosened it up.

    Our Federal government is out of control. There are so many unnecessary layers of bureaucrats, its’ hard to affix blame or fire anyone. Here’s a fascinating stat: in 1800, the year of the first census, we had a population of about 8.8 million people, and the Executive Branch of the Federal government had 125 employees. Fast forward to 2010 (last full year of data) and the population was 310 million. 53.5 times the 1800 pop. BUT, the number of Federal employees in the executive branch ballooned to 2.9 million. So the population grew 53.5 times, but the number of Federal employees grew 21,200 times. Why? They’re in to way too much stuff, in way to many layers.

    Why does the CFPB need more than 10 people? I’m disgusted.

  5. XL

    Your antipathy to all financial regulation is to be expected. The fact that there are a whole bunch of people out there in need of help is apparently beyond your ability to grasp. I agree that it’s great to be at the top of the heap looking down. It’s shameful however that you’re so high up you have lost the ability to comprehend the needs of those without your (and admittedly), my advantages. Until greed is replaced by compassion, which I’m expecting along with the second coming, reasonable financial regulation is preferable to none.

  6. Tom brown

    Xl, people like you just don’t read closely or slow enough. You mistakenly conclude that people like me don’t want reasonable regulation of financial services firms. We do. But we want individuals to be responsible for their actions! People like you really just want equal outcomes guaranteed; many of us will fight passionately against that.

  7. JMB

    Once again, Tom, nice work on outing this BS.

    Kim B, good point. Except that the federal government’s intrusion into higher education is the primary source of tuition inflation. First, through promiscuous lending, the federal government has aided and abetted a redistribution of wealth from taxpayers (who subsidize said lending) to universities and colleges. Second, as a result of the lending relationship and other funding, the federal government has arrogated itself the power to (over)regulate higher education and impose its will–greatly driving up administrative costs. (For the latter point, see http://online.wsj.com/article/SB10001424127887323582904578485041304763554.html?mod=WSJ_Opinion_LEADTop)

  8. Mark

    I had been making home loans for 25 years in community banks (and somehow never had a foreclosure or a discrimination charge). But a couple years ago I had to get registered with the National Mortgage Licensing System in order to protect my customers. So now I finally get to put initials behind my name with my NMLS number but my colleagues will tell you that I’m no smarter than before.

  9. J Hanson

    Please make sure that this article is sent ‘gratis’ to every US Senator and Representative.

  10. Kim B

    Perhaps, while contemplating student loans, the federal government should spend some time trying to regulate the obscene inflation in college tuition, and increasingly dubious correlation to earning potential that creates the default scenario to begin with.

  11. Ken Greenberg

    What are they up to, 1,000 employees or more? With a director who shouldn’t even be there based on the court ruling negating his recess appointment… but he’s still there. This comes on the heels of them coming up with a 1,000+ page document on how to simplify the mortgage disclosure form – a three page document. Only in DC. Salaries galore plus defined benefit pension plans. A good gig.

    To those who think we need these clowns to regulate the banking industry so we don’t have another financial crisis, here’s the reality check: Congress is guiltier than any bank for promulgating and creating most of the crisis. They just have the bully pulpit, and salivating media, who help them blame everybody else.

    Want lower college tuition? Reel back the student loans. They didn’t exactly help make college more affordable… colleges just raised tuition as students and parents could borrow more.

    For Mark who has been in the mortgage biz for 25 years: remember when everybody had to put 20% and have a debt to income ratio of at least 38%. It was like that forever…. until Congress loosened it up.

    Our Federal government is out of control. There are so many unnecessary layers of bureaucrats, its’ hard to affix blame or fire anyone. Here’s a fascinating stat: in 1800, the year of the first census, we had a population of about 8.8 million people, and the Executive Branch of the Federal government had 125 employees. Fast forward to 2010 (last full year of data) and the population was 310 million. 53.5 times the 1800 pop. BUT, the number of Federal employees in the executive branch ballooned to 2.9 million. So the population grew 53.5 times, but the number of Federal employees grew 21,200 times. Why? They’re in to way too much stuff, in way to many layers.

    Why does the CFPB need more than 10 people? I’m disgusted.

  12. phil

    XL, If the CPFB keeps it up, there wont be any people willing to help if at each turn they are presumed guilty until proven innocent. We help people every day and its frustrating to be called a criminal by the people who are supposed to regulate you.

  13. David Ricardo

    it is always the same, the bleeding heart looks at the suffering little guy and says there ought to be a law and the industry says well, okay if you must raise the barriers to competition against us and give us more pricing power we’ll go along grudgingly but please, please don’t throw us in that briar patch again.

  14. Milkweed

    Tom, I generally agree with you and have had serious reservations about the potetial for CFPB to result in costly meddling to justify it’s existence but your example here is pretty weak. I don’t use an advisor and don’t have a clue what qualifies someone to get a designation. Since you don’t seem to know either it doesn’t sound like it’s much and I don’t see the problem with the government setting up some sort of standards for qualifications for different financial planner designations. The government sets up minimum standards for all kinds of professions, I’m shocked that they don’t seem to have standards for financial advisors already. This one actually has me feeling better about the CFPB. The student loan thing is a whole nuther animal and validates why we should worry about CFPB meddling.

  15. Public Choice Theory

    The purpose of the student loans is to create and enlarge a voting constituency for the democrats.

  16. John

    Tom, have you ever met any elderly people? There are quite a few of them whose faculties are no longer as sharp as they once were, which makes them vulnerable to the unscrupulous. I knew one elderly woman who threw cash into the trash if she thought it was dirty. So these are not people capable of applying “common sense”.

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