The Ultimate in Deregulation

First, issue executive orders freezing overzealous excesses from the Obama years. Recall the flurry of signing ceremonies in January and February. Check.

Second, appoint reform-minded outsiders to head federal departments, who then begin the delicate work of undoing the most burdensome regulations. See, for example, Scott Pruitt at the Environmental Protection Agency, Ryan Zinke at Interior, and Betsy DeVos at Education. Check.

Attacking regulations has been one of the Trump administration’s few unambiguous successes, but that agenda is subject to overnight reversal the next time a Democratic administration comes to town. To prevent that will require a third act that offers more permanence: getting rid of government agencies.

It makes sense to start with one that’s highly political yet insulated from political accountability: the Consumer Financial Protection Bureau. The agency’s director, Richard Cordray, is stepping down at the end of November. What better time to reassess the future of the agency—and ask whether we really need it at all?

More than 50 years ago, Ronald Reagan said, “A government agency is the nearest thing to eternal life we’ll ever see on this earth.” As if to prove him right, the federal government has added six cabinet-level departments since then while shedding only one, the Department of Health, Education, and Welfare, which morphed into two departments in 1979.

Republicans love running for office on the idea of abolishing unnecessary or duplicative agencies and departments. Who can forget Energy secretary Rick Perry’s “oops” moment in 2011 when, as governor of Texas running for president, he promised he’d cut “three agencies of the government when I get there. .  .  . Commerce, Education, and the uh, uh, what’s the third one there?”

Perry’s forgetful moment is an appropriate metaphor for the amnesia that develops when Republicans win elections: They forget to make the cuts. In 2016, the one agency that the Republican platform favored abolishing was .  .  . the Consumer Financial Protection Bureau (CFPB). The platform called it “the worst of Dodd-Frank” financial reforms in 2010, “designed to be a rogue agency.”

In its short history, the CFPB has compiled a long list of overreaches, imposing new burdens on lenders and auto dealers and collecting millions of bits of consumer data to comb for perceived injustices, even if it can’t quite prove actual harm.

Most of its excesses spring from its unique structure. When they passed the Dodd-Frank Wall Street Reform and Consumer Protection Act on a party-line vote, Democrats designed the CFPB to be politically untouchable. It draws its funding not from congressional appropriations but from the Federal Reserve. The president appoints the bureau’s director to a five-year term and can remove him only for cause.

With a funding stream independent of the legislative branch and almost no accountability to the executive branch, the Consumer Financial Protection Bureau is the rare government agency that can act with near impunity. Its mandate is to enforce 18 federal laws, educate consumers, and prohibit “unfair, deceptive, or abusive acts or practices.” That last vague mandate has been particularly troublesome—especially since the bureau’s aggressive interpretations are mostly beyond the oversight of elected officials. Republicans say the CFPB has ignored congressional subpoenas and shrugged off questions about massive cost overruns at its new Washington headquarters.

The bureau’s anti-business posture has real costs, particularly for smaller companies that cannot afford expensive lawyers to advise them about unpredictable risks. Testifying before Congress in March, David Motley, president of Colonial Savings in Fort Worth, told members of a financial services subcommittee that “too often it is unclear how the CFPB interprets a particular statute until an enforcement action or even multiple enforcement actions have occurred. Rather than responding proactively to a rule or guidance, financial institutions can only pay for considerably more counsel and compliance advice and hope they are not used to exemplify noncompliant behavior.” By imposing compliance costs on smaller companies, the bureau stifles innovation that benefits consumers.

Supporters of the bureau claim increased regulations are necessary to prevent the next financial meltdown, repeating the conceit that Washington regulators could have stopped the 2008 crisis if only they had enjoyed greater power. That’s not clear, but in any event, many of the bureau’s proposed regulations—such as banning banks from inserting arbitration clauses in contracts, to the benefit of trial lawyers—have nothing to do with financial stability. (Congress voted in October to set that rule aside.)

It’s not even clear that everyday financial products sold to consumers even deserve added scrutiny from government. Thaya Brook Knight of the Cato Institute says the bureau’s approach to consumer finance reminds her of the talking Barbie doll in the early 1990s that was roundly criticized for lowering academic expectations for girls by saying, “Math class is tough!”

“We’re saying the same thing to the American people,” she says. “We have complex financial products. The solution is not to say, ‘Oh, these things are really hard, people can’t deal with them on their own.’ We need to say, ‘We are all capable of dealing with this, we just need to figure it out.’ .  .  . There are ways to figure out the right thing without having a government agency telling you.” That seems particularly true in an era when consumers have more access to information than ever before.

Federal laws, of course, should be enforced. Banks are already regulated by, among others, the Federal Reserve, the Treasury Department, and state agencies. Fraud is already policed by the Federal Trade Commission. Fair housing laws already fall under the jurisdiction of the Department of Housing and Urban Development. There are plenty of regulators in place, just as there were before the CFPB came on the scene wielding new powers in 2010.

Meanwhile, the courts are all but inviting Congress to overhaul the bureau’s structure. In October 2016, in a case in which the bureau was accused of applying an interpretation retroactively, a three-judge panel of the D.C. Circuit Court of Appeals ruled that the bureau’s structure is unconstitutional because its director is unaccountable:

The case is under appeal to the full circuit court.

Even people who helped create the bureau are having second thoughts. Writing in the Wall Street Journal in November, a former aide to then-Rep. Barney Frank acknowledged it was a mistake to invest so much power in a single individual. “The authors wanted the bureau to be a fair arbiter of protecting consumers, instead of what it has become—a politically biased regulatory dictator and a political steppingstone for its sole director,” wrote Dennis Shaul, who now heads a financial-services trade association.

Some lawmakers are responding. Sen. Ted Cruz (R-Texas) and Rep. John Ratcliffe (R-Texas) introduced a bill in February to abolish the bureau. Despite this being the official position of the GOP, it has only seven cosponsors in the Senate and 30 in the House.

A measure with more traction is the Financial Choice Act, a more comprehensive suite of Dodd-Frank reforms. It includes a major overhaul of the CFPB, restricting its powers, giving the executive branch more control over its director, drawing its budget from Congress, and renaming it the Consumer Law Enforcement Agency. The bill passed the House in June with no Democratic support. Its fate rests with the Senate, where sensible, conservative reforms too often go to die.

Across Washington, regulatory burdens are being reduced. Republicans have a rare and welcome chance to undo the Consumer Financial Protection Bureau—and prove Ronald Reagan wrong.

Tony Mecia is a senior writer at The Weekly Standard.