The Consumer Financial Protection Bureau (CFPB) intends to furlough most of its workers on December 31st. The young agency was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, officially opening in mid-2011.
The mission of the Bureau is defined by its name, but the agency has been wracked with conflict and political dissent from the beginning. Richard Cordray became the first Director of the Bureau following a decision by the Senate not to consider his nomination. President Obama made a controversial recess appointment of Cordray on January 4, 2012, allowing him to begin serving without immediate Senate approval.
During the first Trump Administration, Cordray refused to leave when he was fired from his role.
Other controversies include a lack of Congressional oversight and funding that evaded the typical agency allocation process via appropriations. Some also lambasted the CFPB as a political entity designed to advance left-wing ambitions and “regulation by enforcement.”
Yesterday, Senators Elizabeth Warren, Rev. Raphael Warnock, Ruben Gallego, and Andy Kim, all Democrats, sent a letter to the CFPB claiming that the closure of the agency would hurt homebuyers as it would undermine the consumer mortgage market.
The letter claims:
“If the CFPB stops publishing standardized APOR (Average Prime Offer Rates) tables, lenders might not make loans to lower-income borrowers, given the risk of coming in too far above the APOR and potentially getting sued. Or, they might raise interest rates on loans to compensate for the increased risk the market will price in without the liability shield that comes with making a QM loan—skewing the cost of homeownership and cutting off credit access for borrowers.”
The Senators state that shuttering the CFPB would create uncertainty in the mortgage market, claiming lenders would struggle to carry out their legal obligations. The missive predicted an exacerbation of the “housing crisis.”
Currently, plans are in place to shift the CFPB’s responsibilities to other agencies. The CFPB’s existing litigation and enforcement cases will be moved to a newly created branch within the Department of Justice. The Federal Trade Commission (FTC) is also expected to handle consumer protection concerns, which is why the FTC was created.
The CFPB was the brainchild of Senator Warren, who reportedly hand-picked Cordray, known for his extreme left-wing views, as its first director. The closure of the agency would represent a significant policy U-turn. It also reflects ongoing concerns about aspects of Dodd-Frank that some believe are heavy-handed.
In general, most insiders view the creation of a new agency or the expansion of the bureaucracy as a poor use of tax dollars. Some observers believe that tasking an existing agency would have been more pragmatic.
While the Bureau’s mission of protecting consumers from abusive practices holds merit, adding another agency into the financial regulatory mix has always been a bad decision, building upon current inefficiencies, which act as a hidden tax on the public.