While there are many reasons to criticize the Consumer Financial Protection Bureau (CFPB), it being assigned to enforce the nation’s financial consumer protection laws should not be one. Yet in another example of how the Bureau’s unconstitutional structure and lack of oversight corrupts its mission, it appears the CFPB has abused its power to penalize lawbreakers to establish a fund it has used for political purposes.
When the CFPB collects civil penalties, they are dropped into the Civil Penalty Fund, which, like the CFPB itself, was established by the Dodd-Frank Act. Some of this money is used to provide compensation to victims based on harm. When no victims can be found, the money goes toward consumer education and financial literacy programs, according to the CFPB
As of September 2016, the CFPB spent 61 percent of all fines collected on victim compensation, while only 5.5 percent of the funds have gone to consumer education. A small amount has been used for administrative costs. The rest remains in the fund.
The agency does not disclose exactly which “consumer education” or “financial literacy” programs the money has gone to. An independent audit has not been conducted.
Ultimately, allocations of the fund are at the whim of the director of the Bureau. Whether consumers get paid and how much is up to him. The CFPB has been vague on how it determines which appropriate consumer education or financial literacy programs to fund. Many of the previous recipients of the money have been not so much consumer advocacy groups as left-liberal organizations, such as the Mississippi Center for Justice and the People’s Community Action Corp of St. Louis.
As of this year, the total amount of money in the fund was over $300 million. It sits in an account at the Federal Reserve Bank of New York. The Bureau’s previous leadership could not explain where the money is actually going.
New CFPB Director Mick Mulvaney should make it a priority to investigate whether fines have been levied appropriately (the PHH case suggests otherwise) and whether funds have been used as provided for by statute. A bureau of the U.S. government should not even give the appearance of operating a politically directed slush fund.
Research Associate Jenny Grimberg contributed to this post.