Celebrate Consumer Finance Law Modernization


Earlier this month, the Consumer Financial Protection Bureau (CFPB) announced that it will create a taskforce to “harmonize and modernize federal consumer financial laws.” The Taskforce on Federal Consumer Financial Law will report to the CFPB Director with recommendations to improve and strengthen the legal and regulatory regime surrounding consumer credit markets. To this end, the taskforce will focus on updating the laws and regulations faced by consumers and financial service businesses that are archaic, needless, or onerous.

Not only has the Competitive Enterprise Institute called on the CFPB to undertake such efforts, the bureau has a statutory obligation under the Dodd-Frank Wall Street Reform and Consumer Protection Act to pursue such pro-consumer reforms. For example, according to Dodd-Frank, one of the CFPB’s objectives is to identify and address “outdated, unnecessary, or unduly burdensome regulations.”

Despite the fact the CFPB is following the letter of the law as mandated and creating a taskforce to help execute such compliance with the law, some commentators have suggested that this as an attempt to “loosen rules for the industries it oversees.” At least that’s according to David Lazarus of the Los Angeles Times who wrote a column last week slamming CFPB Director Kathy Kraninger for creating the taskforce.

The crux of Mr. Lazarus’s argument against creation of the taskforce focuses on a 1972 report published by the National Commission on Consumer Finance. According to the CFPB, inspiration for the new taskforce came from findings in the report. Lazarus argues, however, that this inspiration was fake or fabricated, since the report calls for improved regulation of consumer credit markets. But it is Lazarus who misrepresents much of the report and some of the key points emphasized.

To illustrate his point, he lays out a few cases where the report calls for enhanced regulation and then insinuates that the CFPB is trying to eliminate such protections in these areas through the taskforce—specifically wage garnishment, repossession, and the use of harassing debt collection practices. However, while the CFPB is modernizing rules in some of these areas, it is not trying to permit the bad practices of old.

In fact, much of the 1972 report actually takes a deregulatory approach with its recommendations. For example, the report emphasizes federalism and the division of power as it calls for eliminating duplicated enforcement efforts by federal and state authorities.

Beyond this, the report also says that the commission “was unanimous in concluding that a truly competitive consumer credit market with… legislation and regulation to eliminate excesses, will foster economic growth and serve to optimize benefits to the consumer.” The commission even finishes the summary of the report by stating “[as] free and fair competition is the ultimate and most effective protector of consumers, we have recommended the elimination of restrictive barriers to entry in consumer credit markets by permitting all creditors open access to all areas of consumer credit.”

Contrary to Lazarus’s narrative, the taskforce will help ensure free and fair competition in the consumer credit market, just as the report intended. While it’s unfortunate that he had to bend the substance of the report to fit his account, it’s good to know that the CFPB is continuing its efforts as a pro-consumer regulator—despite the onslaught of unwarranted attacks on its good work.