Did you see that CFPB head Richard Cordray went before a House panel last week and said he’s planning to boost his agency’s budget by 27% this year? He didn’t bother to actually ask Congress for the extra money, or even lobby for it. He simply announced that his agency will spend $448 million, whether anyone liked it or not.
I’m not sure this is what the Founders had in mind when they came up with the idea of Congress having the exclusive power of the purse. Oh, well. The CFPB can get away with stunts like Cordray’s because, unlike every other federal regulatory agency, it’s funded not via Congressional appropriation or subject to rigorous oversight. Instead, the agency has its own in-house money spigot, called the Federal Reserve. According to the Dodd-Frank Act, which authorized the agency, the CFPB can allocate itself up to $548 million from the Fed this year, and then $598 million next year. By law, the Fed can’t turn down the request. Congress plays no role in the process.
And Richard Cordray himself, you may recall, is accountable to no one, either, having been appointed to his job by President Obama via a recess appointment. No confirmation hearings. No approval by the Senate. Just a fiat-and he can spend hundreds of millions of federal dollars, without having to answer to anybody.
Given all this, you’ll forgive me if I make the observation that, as it’s currently constituted, the Consumer Finance Protection Bureau is an affront to representative democracy. No wonder Republicans vowed to not confirm anyone to head the agency until basic changes were made to its structure. It’s only natural that elected officials should recoil notion of federal bureaucrats being officially unaccountable. I’m at a loss to understand why Democrats, or any Americans, don’t feel the same way.
But put aside my civic outrage for a moment. Over the near term, the CFPB in its current form is bad news: the agency will almost certainly make consumer credit more expensive and less available, and slow economic growth generally. “I think that there is more we can provide and more we intend to provide, and we will continue to ramp that up,” Cordray told Congress last week, by way of explaining the mega-raise he was granting his own agency. Great! And what “more” do you suppose Cordray has in mind? His agency has already said it’s going to look at debt-collection practices, for example. Before you start cheering, remember that aggressive regulation of debt collectors will likely have the effect of reducing lenders’ recovery of bad debts, which will in turn force them to charge more for loans. And the CFPB is looking at bounced-check charges. That might strike you as high-minded, too, but it could result in one less alternative source of near-term funds for cash-strapped consumers. Why would that be good?
Meanwhile, you can add the CFPB’s new half-billion-dollar budget to the $1 billion the Office of the Comptroller of the Currency spends each year, and add that to the unknown billons on supervision spent by the Fed, the FDIC, and state banking regulators. That pre-CFPB regulatory regime failed spectacularly to anticipate or mitigate the housing bubble. The post-CFPB environment will be even more bureaucratic and complex. When the next crisis brews, do you think it will do any better?
Sensible regulation of the banking system is essential. But Dodd-Frank doesn’t move us in that direction. Among other things, it has given us new agency, the CFPB, that’s accountable to no one, and that will likely stifle innovation, make credit more expensive, and reduce consumers’ credit options. That’s not good for consumers and it’s not good for the recovery.
What do you think? Let me know!