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Senate Democrats' Report Misses Mark on Mulvaney

While President Trump’s nominee to head the Bureau of Consumer Financial Protection, Kathleen Kraninger, awaits a final confirmation vote in the Senate, Senate Democrats have authored a report criticizing the Trump administration’s management of the Bureau.

The report, titled, “Pushing the Envelope: The Consumer Financial Protection Bureau Under the Trump Administration” and produced by the minority staff of the Committee on Banking, Housing, and Urban Affairs, is heavy on rhetoric but light on facts. Written as an ‘exposé’ of the Bureau’s acting director, Mick Mulvaney, the report outlines how “Mr. Mulvaney is dismantling the agency from the inside, hiring a group of political cronies and paying them enormous salaries to run the agency into the ground.”

In particular, the minority’s report argues that the Bureau has unfaithfully applied the law by dropping legitimate enforcement actions and rewriting newly-established regulations; that the dozen Requests for Information (RFIs) issued to obtain public input on the Bureau’s operations are little more than a “bait-and-switch” for industry-favored reforms; and that the newly required cost-benefit analysis of regulations is little more than “a longstanding push by Wall Street” for deregulation.

But nothing could be further from the truth. As acting director of the Bureau, Mulvaney has overseen a critical leadership transition, the first in the Bureau’s short history, reforming the excesses of the agency to better comport with its purpose. As Mulvaney himself has made clear, the new mission of the Bureau is twofold: 1) to execute the law as written, and 2) to base agency action on rigorous analytical standards, such as cost-benefit analyses. When prior agency actions have not aligned with this position, they are fit to be revised. This is not some radical departure to fear.

Despite what the minority report claims, the deregulatory actions taken by the Bureau to date have included only those that either exceed the Bureau’s regulatory authority or are based on inadequate evidence, consistent with the Bureau’s new guiding principles. For example, the Bureau has announced that it plans to rewrite the payday loan rule. As I have outlined recently, there is ample reason to the revisit the rule as the major provisions lacked an adequate empirical foundation.

It’s also not the case that Mulvaney has neglected to enforce the law. As the report recognizes, the Bureau under Mulvaney’s tenure has brought ten enforcement actions, one of which involved the controversial “abusive” standard under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) provision. While this may indeed be a drop off from the previous year, it actually exceeds former director Cordray’s first year heading the Bureau, when only six enforcement actions were taken. The new iteration of the Bureau has made an effort to reform its enforcement practices away from “regulation by enforcement,” whereby it uses dubious enforcement actions to in effect create new law, and towards more bread-and-butter applications of consumer finance law.

Further, the report holds up the Wells Fargo and Ally Financial enforcement actions as examples of beneficial Bureau actions that Mulvaney is now pulling back on. Yet these actions exhibit precisely the problems with the Bureau’s enforcement. The Wells Fargo case was a disaster. It was the kind of issue that the Bureau was designed to tackle, yet it failed miserably. While exercising supervisory authority over the bank, it completely missed the violations, only to be discovered by a Los Angeles Times reporter later on. The Ally action, as I have written about at length, was a prime example of an administrative agency overstepping its authority, while also attempting to force through broad new policy through enforcement. If these are the kind of actions that the new Bureau is avoiding, then that is to the benefit―not the detriment―of the consumer financial marketplace.

It is also revealing how threatened Senate Democrats are by the simple propositions that a regulatory agency should follow the law as required and base its actions off of evidence. The fact that “the Bureau will continue to execute the law, but will no longer go beyond its statutory mandate” and that “there will be a lot more math [quantitative analysis] in our future” is not a cause for concern. In fact, it will significantly improve both the quality and legitimacy of its rulemaking and enforcement actions.

Consumer protection advocates continually promote the ostensible benefits of federal financial regulation and the harm that comes from a dearth of regulation. If they were truly confident in these statements, they should have no reason to fear an assessment of the costs and benefits of a rulemaking―surely their claims would hold up to scrutiny. The fact that the minority attacks this position is indicative of the lack of faith they have in  their own proposals.

Instead, they claim that a cost-benefit standard would result in a “politicized” and “rigged” analysis used to “support the Director’s predetermined agenda.” While there may be unavoidable problems with cost-benefit analyses, as there is with all economic and social science research, this problem is made significantly worse without a rigorous cost-benefit requirement. Indeed, under the former administration, which lacked such a standard, it was significantly easier for the director to implement his “predetermined agenda,” and it would be easier now for the Bureau to undo those same regulations if the cost-benefit barrier wasn’t in the way.

Another complaint of the report is that Mulvaney has hired twelve political appointees to help oversee the transition of administration. The irony of this complaint is that the Bureau was designed and implemented by a Democratic administration, which hired and appointed around 1,600 staff members, the overwhelming majority of which lean politically left. Further, there is evidence to suggest that Republicans were purposefully weeded out of the Bureau’s hiring. It is disingenuous for the minority to argue that Mulvaney hiring a dozen Republicans is some kind of egregious action.

In sum, the Senate Banking Committee minority’s report is grasping at straws. Mulvaney is no doubt taking actions that the minority disagrees with. But not every action contrary to the Democratic party’s beliefs is “undermining” or “destroying” the Bureau. Reasonable minds can differ on how best to protect consumers, and efforts to promote competition and innovation are surely in their best interest. Indeed, a marketplace that lacks these qualities is often to the detriment of consumers. Perhaps Senate Democrats should consult a recent speech from the Bureau’s acting deputy director, Brian Johnson, where he clearly articulates the Bureau’s new vision (I would recommend everyone to take a look at the brilliant and informative speech.) I will briefly quote a passage below:

The mission of the Bureau is to protect consumers. We are deeply committed to that mission. Full stop. The fundamental purpose of government is protecting the rights of its citizens. And that means protecting the vulnerable and less fortunate among us. It means making sure consumers aren’t taken advantage of. It means helping them understand complicated financial products so they can make informed decisions. And ultimately, it means helping them climb rungs of the economic ladder so they can better provide for their families and pursue their dreams. This is important work. It is vital work.

Yet as Johnson makes clear, there are certain guiding principles that the new Bureau will exhibit when protecting consumers, particularly when a statute affords the Bureau some discretion in enforcing the law.

[We will be] guided by a presumption in favor of consumer choice. That is our guiding principle. Because when consumers are free to choose among an array of financial products that potentially suit their needs, it creates competition, expands choice, and promotes individual autonomy, and liberty. It’s an environment where everyone is better off. And the Bureau can support that marketplace by making sure consumers have good information and are properly educated about financial products.

Finally, Johnson concludes 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.” Clearly, the Bureau’s new leadership is not intent on killing the agency, it is intent on harnessing its important mission to facilitate mutually beneficial market exchanges, which will, at times, involve rulemaking and enforcement activity. The failure of Democrats to recognize that, instead insisting that all Republican actions are driven by “corporate greed” to “rip off consumers,” is disingenuous and counterproductive to the long-term success of the Bureau.

More fundamentally, if the Bureau’s director is acting in an unaccountable manner, then Congress must reclaim its appropriations and oversight authority that it abdicated under the Dodd-Frank Act of 2010. Why Democrats insist on an unaccountable Bureau, while on the other hand complaining about an unaccountable Bureau, makes little sense. Reclaiming the appropriations power over the Bureau’s budget would give Congress the ability to meaningfully check the regulators’ actions when it acts outside of its prescribed authority. That should be something that everyone can agree on.