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The CFPB Has a Dim View of Other Federal Regulators


By Norbert Michel, Cato Institute


On the surface, there’s nothing special about the Consumer Financial Protection Bureau’s recent request for information (RFI) on fees charged by financial firms. The Bureau is, after all, an independent regulator of financial products and services. (Thanks to the 2010 Dodd‐​Frank Act.)

And the Bureau does have the statutory authority “to enforce Federal consumer law for the purpose of ensuring consumer financial markets are fair, transparent, and competitive.”

One would think, though, that if markets were not mostly fair, transparent, and competitive, the Bureau would be inundated with complaints from typical Americans. At the very least, the Bureau wouldn’t have to look very far for examples of injustice, and their complaint database would be overflowing.

Nonetheless, it appears that the Bureau thinks all the other financial regulators have been asleep at the wheel for years.

The Bureau’s request implies that financial firms charge “hidden back‐​end fees” that “lure consumers” into making purchases based on lower prices, and that “exploitative junk fees charged by banks and non‐​bank financial institutions have become widespread.”

This claim is magnificent if for no other reason than most financial companies–especially banks–can’t really do anything that isn’t blessed by federal regulators. These companies have mounds of disclosure requirements, especially when it comes to pricing and fees. And they don’t get to pick and choose which disclosures they want to abide by.

If the Bureau is to be believed, banks have been increasingly failing to disclose their NSF fees, overdraft fees, minimum balance fees, card replacement fees, out of network ATM fees, and wire transfer fees, just to name a few. If there is any truth to this claim, federal banking regulators should be publicly reprimanded and the federal employees responsible for allowing such malfeasance should be fired.

It is infinitely more likely, though, that the Bureau is really after something else: price controls. That is, Bureau director Rohit Chopra wants to gather enough information (stories) to argue that firms have been exploiting consumers with excessive fees. Then, he can try to put caps on the so‐​called excessive fees or prohibit them altogether.

People will argue that the Bureau does not have the authority to implement these kinds of price controls, and there are valid legal arguments to support their position. However, the Bureau has the authority to protect consumers from “unfair, deceptive, or abusive acts and practices.” While “unfair” and “deceptive” acts and practices are well‐​established concepts in consumer protection law, the term “abusive” has not been defined in law.

Congress gave the Bureau inordinate discretion in this matter, and the recent experience with small dollar lenders shows precisely why that was a mistake. Fortunately, Congress has several choices to correct the problem.

Congress could, for starters, eliminate the CFPB by repealing Title X of Dodd‐​Frank. There was no need to create a new government agency, and the Bureau was created under the false premise that 2008 financial crisis resulted from the defrauding of financially illiterate consumers by predatory lenders. A lack of consumer protection was not a major factor in the crisis, and consumers would be just as protected from fraudulent behavior as they are now if the CFPB is eliminated.

If Congress insists on consolidating consumer protection in financial markets under one federal agency, then that’s easy too. Before Congress created the CFPB, authority for approximately 50 rules and orders stemming from more than 20 consumer protection statutes was divided among seven agencies. So all Congress has to do is transfer enforcement authority for those statutes to the Federal Trade Commission, the agency (created in 1914) whose mission is “protecting consumers and competition by preventing anticompetitive, deceptive, and unfair business practices.”

Of course, Congress should also eliminate the ill‐​defined “abusive” standard. Whichever option Congress picks, members can rest easy knowing that Americans will be just as protected against unfair, deceptive, and fraudulent practices as they are today, but without the harmful effects of a regulator with overly broad authority.


Norbert J. Michel is vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives, where he specializes in issues pertaining to financial markets and monetary policy.