Dodd-Frank’s Protection Racket: The New Consumer Financial Protection Bureau Is Both Irrelevant and Dangerous
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When President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law two summers ago, standing behind him was Andrew Giordano, a retired Baltimore police officer. Giordano had “discovered hundreds of dollars in overdraft fees on his bank statement—fees he had no idea he might face,” Obama said. Looking on, too, was schoolteacher Robin Fox, “hit with a massive rate increase on her credit card even though she paid her bills on time.” Obama promised that it wouldn’t happen again. “A new consumer watchdog,” he announced, would have “just one job: looking out for people as they interact with the financial system.” People could expect an end to complex mortgage, student-loan, and credit-card contracts in which “pages of barely understandable fine print” contained “hidden fees and penalties.”
The new watchdog is called the Bureau of Consumer Financial Protection but is commonly shortened to the CFPB, with the “bureau” at the end. Its director, former Ohio attorney general Richard Cordray, is a savvy politician, and he has worked to fashion an anti-TSA: a government agency that people trust and like. It is busily making and enforcing rules governing everything from mortgage approval to bounced checks, and it has created a website, consumerfinance.gov, full of handy tips—many targeted to young people—and humble requests for comments and complaints. The bureau has held “field hearings” and town-hall meetings far outside the Beltway, listening to regular Americans’ perceptions of the financial industry. A publicity coup came in March, when New York Timescolumnist Joe Nocera visited the bureau’s offices and came away gushing about his “inspiring day.”
Despite the good press, however, the CFPB—which will cost taxpayers almost half a billion dollars per year—is useless in some ways and deeply harmful in others. Some abuses that it was designed to curb have already been handled by existing federal agencies, while others are beyond its power to fix. The agency is equally incapable of remedying the worst ailment facing the American financial “consumer”: crushing debt, much of it purveyed by the federal government. Yet at the same time, Congress has given the CFPB the formidable power of banning abusive, unfair, deceptive, or discriminatory financial practices relating to Americans’ everyday financial interactions. Though that may sound appealing, remember how the government, by trying to do essentially the same thing with mortgages, lured poorer people into financial contracts that they couldn’t afford. The CFPB may do for credit cards and other financial products what the government did for mortgages: make the poor think that borrowing lots of money is perfectly reasonable. The CFPB, in sum, is Washington’s new weapon in its war for more debt.