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As we observed in “Financial Crisis and Leviathan,” a deep recession, widespread unemployment, and fathomless debt were the prevailing conditions when the Obama administration created the federal Consumer Financial Protection Bureau in 2011. The CFPB was based on the premise that consumers were unable to look out for themselves without help from the federal government. CFPB defender Paul Krugman captured this sentiment when he wrote, “Don’t say that educated and informed consumers can take care of themselves,” and “even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals.”
As the New York Times reports, the CFPB now proposes a rule that would allow customers to bring class-action lawsuits against financial firms. Opponents of the rule told the Times it would lead to an upsurge in litigation and spell the end of arbitration, which businesses tend to favor. The U.S. Chamber of Commerce said in a statement that “The proposed rule is a wolf in sheep’s clothing,” and that “the agency designed to protect consumers is proposing a rule that will end up hurting them.” If so, it wouldn’t be the first time, and taxpayers might note the irony. Those well-educated and informed consumers supposedly too dim to protect themselves from financial fraud are now fully qualified to launch complex legal actions and competent to assess the risks and payoffs.
Taxpayers might also recall that the CFPB was created with no hint that government policy, regulation, or failure could have played any role in the financial crisis. CFPB backers also avoided mention of the Community Reinvestment Act, despite considerable evidence that the 1977 Carter-era law, with its promotion of lax lending standards, was a key part of the problem. The CFPB thus confirms the federal government’s zeal for expansion at any time, at any cost, and without any regard for need or performance. No new federal agency, however useless, is ever temporary. And as the CFPB class-action caper suggests, such agencies tend to become more troublesome and wasteful, not less.