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Consumer Financial Protection Bloat

Friday June 9th, 2017   •   Posted by K. Lloyd Billingsley at 11:52am PDT   •  

The Financial Choice Act designed to undo Dodd-Frank financial regulations has passed the House and as it moves to the Senate opponents are crying foul over attempts to weaken the federal Consumer Finance Protection Bureau (CFPB). Ed Mierzwinski of the U.S. Public Interest Research Group told Consumer Reports, “The bill would leave the successful CFPB as an unrecognizable husk.” This calls for some review.

As we observed in “Financial Crisis and Leviathan,” a deep recession, widespread unemployment, and fathomless debt were the prevailing conditions when CFPB was created in 2011. The federal agency, with more than 1,600 employees, was based on the premise that consumers were unable to look out for themselves without help from the federal government. As CFPB defender Paul Krugman noted, “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.” The CFPB was also 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 CRA, with its lax lending standards, was a key part of the problem.

According to a former employee, the CFPB is partisan, secretive, and obstructionist. Earlier this year, Ted Cruz and John Ratcliffe, Texas Republicans, introduced bills that would eliminate the CFPB, whose boss Richard Cordray is under fire for allegedly withholding documents. Yet, as the Financial Choice Act moves to the Senate, the federal agency endures.

As Milton Friedman noted, creating new agencies and programs is easy but eliminating them is practically impossible. A bi-partisan ruling class that retains a massive federal Department of Education is not likely to be troubled by the fledgling Consumer Financial Protection Bureau. Taxpayers should not be surprised if much more than a “husk” of the CFPB emerges from the Senate.

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June 2017