CEI Report: CFPB’s Structure is Unconstitutional and the Agency Actually Harms Consumers
The Consumer Financial Protection Bureau (CFPB), the controversial agency created at the behest of Massachusetts Senator Elizabeth Warren and her far-left allies, is structured in an unconstitutional manner and despite it’s name and stated mission, actually serves to harm the very consumers it claims to protect according to a new study released by the Competitive Enterprise Institute. When the CFPB was created as part of the Dodd-Frank law during the Obama Administration, Senator Warren and far-left liberals pressed for a unique structure that would insulate the fledgling agency from the type of strict oversight from elected officials that marks almost every other government agency in the executive branch. According to CEI’s report, the CFPB has three very unusual features that make it less accountable to the American people:
- Its funding comes not from congressional appropriations but from the Federal Reserve, which is to supply whatever the director requests up to a certain amount.
- It is headed by a single director appointed for a fixed term of five years who may not be fired by the president except for “cause,” such as dereliction of duty or malfeasance; and
- The courts are required to give extra deference to the CFPB’s decisions in some cases.
CEI finds these features “violate constitutional norms of checks and balances on executive power and have led the CFPB to abuse its power, including by trying to regulate in areas where its statutory authority is expressly limited.” This lack of constitutional checks and balances at such a powerful agency concerns all of us at Tea Party Patriots and points out the need for serious reforms to the structure of CFPB in order to ensure the agency is accountable to the American people. On top of the constitutional concerns, CEI also finds that CFPB often harms the very consumers it claims to protect.
Consumers have actually been harmed by CFPB rules. This is because it was set up with a one-size-fits-all mentality at its core. It was empowered to create rules that would apply to financial products in every case, based on the false premise that a government agency can design the appropriate financial products for a large and diverse society. This has denied many consumers access to useful, money-saving products. Consumer protection is ill-served if consumers are “protected” from getting access to products that suit their individual circumstances, or are forced to pay more for a less desirable financial product.
One of the arguments advanced in favor of creating a consumer financial protection agency was that it would fulfill a purpose analogous to the Consumer Product Safety Commission. The argument was that, just as a faulty toaster could lead to your house burning down, so a faulty mortgage could lead to you losing your house. The analogy was faulty from the start. A faulty toaster design is faulty for everyone, but financial products serve different customers with different needs. For example, for someone in the right circumstances, a 30-year, interest-only, adjustable rate mortgage can be a prudent choice, even if it is wrong for someone else who does not plan for possible fluctuations in interest rates. Banning the mortgage would help the latter borrower, but harm the former by forcing her to take out a mortgage that costs more, allocates the costs over time in a more burdensome manner, or fails to take account of other circumstances, such as a plan to move in the near future.
Moreover, because of the complexity of financial products, the CFPB’s rules have tended to be extremely long and complicated, imposing a huge compliance burden on financial institutions—which pass on those costs on to consumers in the form of higher fees or reduced product choices.
It is clear that significant reforms are needed to ensure CFPB operates under the same constitutional checks and balances that are required for other government agencies, but the findings of the CEI report raise an even more fundamental question: if the CFPB is failing in its stated mission and is actually harming millions of consumers, Congress should consider whether we would be better off without the CFPB entirely. We are already over $20 TRILLION in debt and need to make significant cuts in government spending to ensure our children and grandchildren are not stuck with crippling debt thanks to government reach and overspending. It’s time to take a hard look at CFPB and figure out whether we need to change its structure or if we would be better off saving our money by ending it permanently.