This post is the ninth in a 10-part series on reform proposals for the Consumer Financial Protection Bureau. See below for previous posts.
One of the most important, yet least visible, changes a new Consumer Financial Protection Bureau director could make is to reform the internal operations of the agency. This would include reforming everything from its hiring, rulemaking, enforcement processes and the structure of its departments, as well as championing a new “vision” of consumer protection.
The internal culture at the bureau is a major cause for concern, as it was clear from the start that the regulator was ideologically biased towards progressive causes. The bureau was formulated, established, and staffed by leading progressives, such as then-Harvard law professor Elizabeth Warren. The agency hired all but exclusively from one political party, deliberately weeding out applicants with differing opinions. For example, data from OpenSecrets.org reveals that out of 732 political donations from bureau staff over the past 7 years, a mere 1 donation was made to a Republican, then-presidential candidate Mitt Romney. Hiring and appointing more free market-oriented employees is low-hanging fruit for a new director, yet would have a significant impact in shaping its future.
In addition, Director Kathy Kraninger should work to strengthen the departmental reforms made by former acting Director Mick Mulvaney. For example, Mulvaney abolished a number of duplicative or redundant departments within the bureau. But he also, more importantly, added additional offices to improve the bureau’s rulemaking, enforcement, and policymaking processes. The new offices, such as the Office of Innovation and Office of Cost-Benefit Analysis, are critical to the future success of the bureau by making sure that its regulatory actions are based on demonstrable harm that violates black-letter law.
Finally, it is crucial that the bureau’s leadership champions a new vision of consumer protection. It would be a mistake to think that the only way to protect consumers was with the heavy hand of government, yet that is exactly what large swaths of the news media and the bureau’s staff tend to think. Instead, efforts to promote competition and innovation can also be in a consumer’s best interest. Indeed, a marketplace that lacks these qualities is often to the detriment of consumers.
While the bureau is often assumed by its supporters and its critics to be a regulator with a narrow mission—protecting consumers through heavy-handed regulations and enforcement actions—the regulator also has a statutory mandate to pursue pro-market reforms, such as prioritizing competition and innovation. For example, the bureau’s objectives include:
- Removing outdated, unnecessary, or unduly burdensome regulations in order to reduce unwarranted regulatory burdens.
- Ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.
The purpose of the bureau in pursuing consumer protection is not only to enforce the law but to also facilitate innovation and competition. It is essential that the leadership at the bureau promote this new vision of achieving consumer wellbeing. Acting Deputy Director Brian Johnson, for example, delivered a speech just prior to Director Kraninger’s confirmation where he laid out the foundational vision of free-market consumer financial protection, including a presumption in favor of consumer choice over the preferences of regulators. Further, Johnson highlighted that the role of regulators is not to replace the market economy, but to reinforce it―“to foster competition and protect consumers by ensuring everyone plays by the same rules.”
Johnson’s speech demonstrates that the new leadership is intent on harnessing its important mission to protect consumers from fraud and abuse, while at the same time seeking to facilitate mutually beneficial market exchanges. Demonstrating that the bureau can play a beneficial role by facilitating a free and competitive consumer financial marketplace is critical to turning around the culture at the agency.
As I have written before, under new leadership and direction, the CFPB can be a force for good. It has a broad mandate to pursue market-oriented reforms, such as removing unduly burdensome regulations and promoting financial innovation. To effectively achieve this, however, the bureau’s leadership needs to overhaul the internal operations of the agency.
Previous posts on reform proposals for the Consumer Financial Protection Bureau:
- Regulators Should Rescind ‘Small-Dollar’ Loan Rule (5/22/19)
- Reform Fair Lending Laws to Uphold Rule of Law (5/23/19)
- Narrowly Address Fair Lending Requirements to Spare Impact on Small Business (5/28/19)
- Consumer Financial Protection Bureau Should Drop Flawed Enforcement Actions (5/29/19)
- Prevent Another Mortgage Crisis: Let Qualified Mortgage ‘Patch’ Expire(6/4/19)
- Consumer Financial Protection Bureau Should Define ‘Abusive’ (6/5/19)
- Consumer Financial Protection Bureau Should Acknowledge Its Unconstitutional Structure (6/11/19)
- Regulators Should Foster Financial Innovation (6/17/19)