Solveig Singleton
The Consumer Financial Protection Bureau (CFPB or the “Bureau”) recently issued a new strategic plan. It offers laudable goals such as following the law, ending overregulation, and focusing on tangible consumer harms. But why has the Bureau declined to follow the law, failed to consistently complete cost-benefit analyses, and lost its core focus on fraud? The plan flags the right problems but does not discuss the root causes.
Until these root causes are addressed, changes made now can easily be reversed by a new administration. Only legislators can fix the problem by making far-reaching and fundamental statutory reforms.
CFPB’s Strategic Plan Offers Laudable Goals
The strategic plan emphasizes that the Bureau will focus on “tangible” harms—namely, concrete harms that a court would traditionally recognize, including financial losses that a victim of fraud can prove by producing evidence such as receipts. By contrast, tangible harms do not include presumed injuries (described by the Bureau in 2023) or dignitary harms (described by the Bureau in 2022).
Why should enforcers not target emotional, dignitary, or presumed harms? Enforcement resources are scarce, and regulatory activities burden the whole economy. Therefore, the public sector prioritizes measurable and clear violations of established rights, that is, those corresponding to traditional concrete harms. By contrast, idealistic regulators do more harm than good when they try to rid the world of ill-defined or hard-to-measure subjective or abstract injuries. For example, the burden imposed by regulatory intervention (ultimately passed on to consumers) will often be disproportionate to the harm of a “presumed” injury.
The strategic plan also declares that the Bureau will henceforth stay within its statutory mandate—that is, the CFPB will follow the law. Historically, the Bureau has too often ignored clear statutory provisions. Ironically, the strategic plan itself does not follow the law in proposing that supervision will focus on depository institutions (e.g., banks) rather than non-depository institutions (e.g., mortgage brokers).
The strategic plan additionally declares the Bureau’s intention to rid financial services of overregulation and assess the costs and benefits of regulations.
These three examples of policies set out in the Bureau’s plan are laudable. But why has the Bureau not followed these policies consistently? Sadly, the Bureau was built for overreach.
The Statutory Origins of CFPB Overreach
The CFPB was designed to be a super-independent agency, lacking the usual checks and balances. This has not worked out well.
The Bureau’s funding comes from the Federal Reserve, not from congressional appropriations. The Bureau’s creators intended to double-insulate the agency from the influence of financial firms acting through Congress. Alas, instead, the CFPB has been influenced by trial lawyers and well-meaning activists, including some who oppose the cost-benefit analysis the law requires the Bureau to conduct.
The CFPB is headed by a sole powerful director, not by a multimember bipartisan commission. Legislators intended to empower the Bureau to take strong measures quickly. Commissions are deliberative and apt to consider and compromise—and usually include members skeptical of regulation. Consequently, the CFPB favors regulation to such an extent that it may disregard the law.
The Bureau is often described as the “cop on the beat,” but this metaphor casts financial service firms in the role of burglars. It represents a sadly oversimplified understanding of the policy problems in financial services.
The Strategic Plan Flags Problems, Congress Needs to Find Solutions
The CFPB’s creators cited lists of the reports that the Bureau must make as evidence that, despite its power to ignore skeptics, the Bureau is accountable. But one cannot have both. An agency cannot be insulated from skeptics and be meaningfully accountable.
The Bureau is not living up to baseline expectations. The CFPB’s strategic plan can reduce the damage the Bureau does in the very short run. But only Congress can repeal or amend the Dodd–Frank Act to fix the problem for good.