Inside Financial Services

The CFPB Needs More Oversight

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If you had to envision, were Congress ever to create an agency whose budget was self-funding and that was essentially not subject to Congressional oversight, what the resulting agency would look like, you’d be hard-pressed to come up with a bureaucracy that’s much different than what the Consumer Finance Protection Bureau has become. Which is to say, an agency that‘s out of control. Shall we call the roll?: > The budget for renovation and construction of the CFPB’s Washington headquarters has nearly tripled from the original estimate, and figures in the end to cost twice per square foot what typical Class A office space goes for in Washington D.C.

> The agency’s staff evaluation process shows the same type of negative (and highly misleading) “disparate impact” on minority employees that, when applied to minority borrowers, the CFPB says is evidence of discriminatory lending. But rather than admit that disparate-impact data is bogus, the CFPB will simply junk its employee evaluation system.

> Management of the agency is said to be beset by “’hostile’ managers and cronyism.” In some of the agency’s offices, annual turnover is said to be running at roughly 40%.

So to wrap up: the CFPB has been spending money as if there’s no tomorrow, all while it has engaged in employee-evaluation practices that, as regards the results they produce, aren’t so different from bank lending practices that the CFPB says it objects to. Got all that? Congress should call the agency to account, at least for its out-of-control spending. But its oversight power is limited. The agency is funded directly via the Fed’s profits; there is no annual CFPB appropriation Congress can threaten to cut. Instead, taxpayers will end up with a lavish CFPB headquarters that will cost twice the market rate. Nor can the CFPB’s head be fired for gross mismanagement. He serves a five-year term and can’t be fired by anyone, even the president, and that’s that.Meanwhile, how’s the agency doing at actually carrying out its job? In January, the Washington Post carried a revealing account of the agency’s formative days, in which it noted a certain messianic streak among employees, notably among Elizabeth Warren’s acolytes: [T]he Warren devotees and those from consumer groups emphasized a “cop on the beat” approach [to regulation], with high-profile enforcement actions that would send a message. They also wanted to discourage exotic financial products, like complicated mortgage repayment plans and credit card teaser rates. Leonard Chanin, who came from the Fed to oversee rulemaking, chafed at the more-interventionist approach. . . . “I lost faith that the agency would become a truly independent entity and carefully balance consumer costs and access to credit with consumer protection,” Chanin said. He offered the example of payday loans. “I think the bureau sees consumers taking out payday loans and believes ‘there must be something wrong here, because consumers really wouldn’t choose these products.’ There is great risk in assuming you know what is best for the consumer.” [Emph. added.] This is a classic nanny-state mindset-“I’m from the government and I know more than you do”–and it’s bad for lenders, bad for consumers, and bad for the economy. You’ll have your own view on the virtues of payday lending, for instance (the agency is still developing its policy). It’s one thing for regulators to develop policies that balance costs versus benefit. It’s another thing entirely for regulators to come up with “high-profile enforcement actions” that are designed to “send a message” because the regulator thinks it knows better than the marketplace does. Given that CFPB answers to no one, which approach is it more likely it to take? In the meantime,if you’re a dedicated, hardworking bureaucrat at the CFPB, how do you like the news that your annual performance review (and pay and promotion opportunities that go with it) is apparently going to be skewed so that the results fit into predetermined racial categories? Are you apt to work even harder and more conscientiously? Its early history shows that the CFPB is having its own set of struggles. The best way to fix them is with proper oversight. That means conventional funding via Congressional appropriation, and by the installation of a board, not a single, unfireable individual, to run the agency-just the way other regulators such as the run. Until that happens the horror stories coming out of the CFPB are just beginning. What do you think? Let me know!

7 Responses to “The CFPB Needs More Oversight”

  1. swpilgrim

    Competence lining up between Postal Service and TSA. You expected more/better?

  2. jsc173

    I believe this is the third or fourth time I’ve posted on my experience with them. I interviewed there for a senior position and was told, in essence, they were off the radar. They believed they were free to build the organization they needed to build without oversight, without having to comply with federal hiring and other practices (e.g., salary administration) and were gong to write their own ticket as to how to operate. Does this sound like the cousin of NSA or what?

  3. Former community bank credit officer/director

    This is so familiar to me when dealing with power hungry regulators over the past ten years who arrive with pre conceived opinions of what they will see and saying they were “just here to help you”. Now they have no one to report to or any budget or congressional approval responsibilities. Regulators out of control are not good for the banking system or for the consumers they are charged to protect.

  4. Burton Johnson

    WIlliam Greider, who could hardly be characterized as a flaming conservative, said it best in the subtitle of his book, Secrets of the Temple: How the Federal reserve Runs the Country, published in 1987. It is still the best book every written about the Fed and the perils inherent to having a central bank. It should be required reading in every economics, history, and political science class.

    Burton A. Johnson, MD, JD
    Burton A. Johnson Portfolio Management, Inc.

  5. Ken Greenberg

    That Congress approved this disaster, with unlimited and unregulated funding, demonstrates their total abrogation of duties. It also demonstrates that Republicans are in it with the Democrats. Congress holds the power of the purse, and should be using it.

    They need an amendment to that other monstrosity of a law that created this thing and should take back dollar control. Put this agency on a diet.

    I’m absolutely sick of hearing how they need more revenue. Even with the sequester, Federal spending has only increased. It never goes down. They have the gall to project double digit increases, then when they get shaved a little, complain that they’re taking big cuts. Who else runs a business like this – with no regard to income and unlimited spending. These guys have to go.

  6. oy

    Boy, do you have a rather selective take on the WP article. You have focused entirely on negative aspects and none of the positives. From my reading, it appears like the start of many other new organizations – lots of confusion, lots of competing personalities, lots of competing agendas, until things start to settle out and the organization begins to gel and moves forward.

  7. gilliats

    thanks for the information, that is what i ask and it is valuable to me. please help us understand the issues. i need to understand without losing sight of what happened in 2008, or how competitive the banking world is today. i hate regulation…up to a point.

    you accelerated my career so much with your understanding of the banking industry a at smith barney. i am a believer…up to a point.


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