The swamp is being drained. Richard Cordray, director of the Consumer Financial Protection Bureau, recently announced his plan to resign by the end of the month. Cordray is expected to run for governor in Ohio next year.
Good riddance. Since its inception in 2010, Cordray’s agency has grown into Washington’s most unaccountable regulator. The CFPB receives its funding as a fixed percentage of the Federal Reserve’s annual budget, exempting the agency from the normal appropriations process. If he hadn’t resigned, Cordray could only have left his post if he was fired by the president and for just cause — a nearly impossible task.
Over the years, Cordray leveraged his unilateral power to target credit card companies, traditional banks, and different types of lenders. The CFPB has issued more than $5 billion in penalties, punishing financial institutions and other businesses in the name of “consumer protection.” Credit unions saw a $7 billion regulatory hit in one recent year, if you account for lost revenue.
Worse yet, the rogue agency ramped up its already excessive rulemaking in the last few weeks of Cordray’s tenure. Perhaps CFPB officials saw the writing on the wall, churning out new rules before Cordray could be replaced by a less partisan director. Whatever the case, the rules were sweeping and deeply misguided.
Take the CFPB’s arbitration ban, which would have barred many financial consumers from using arbitration to resolve disputes. Peddled by Cordray and Sen. Elizabeth Warren, D-Mass., the arbitration rule would have opened the door to widespread class-action litigation risk for almost all consumer finance companies that currently utilize arbitration language in contracts with customers, leaving these companies vulnerable to significant legal fees and damages — justified or not.
Research shows that the arbitration rule would have exposed financial institutions to 3,000 more class-action lawsuits over the next five years, which would impose more than $500 million in legal defense fees. Trial lawyers, a key Democratic constituency, would have received about $330 million. In the CFPB’s own words, “hundreds of millions of dollars” were at stake, and Democratic attorneys stood to gain the most.
Fortunately, the Senate recently repealed the arbitration rule, protecting employers and the customers they serve. Sen. John Cornyn, R-Texas, put it best when he called the rule a “harmful regulation that imposes obvious costs and offers invisible benefits.”
Lawmakers should keep up the momentum and take a closer at other recent CFPB regulations. In October, the agency finalized a rule targeting the payday loan industry, which provides short-term loans to low-income borrowers in need of capital. The rule requires payday lenders to verify a borrower’s income, major financial obligations, and borrowing history before issuing any loan. The agency has already issued a long list of “affordability criteria” to lengthen the payday lending process.
Current requirements governing short-term loans already ensure that customers know the terms and fees of their agreement, while the transaction itself remains quick and transparent. But the CFPB’s “payday rule” jeopardizes these transactions by imposing unreasonably high standards. It effectively eliminates the reason for choosing payday loans over traditional bank loans in the first place, erecting a barrier between low-income Americans and the credit they desperately need.
Given that nearly half of Americans are unable to cover an unexpected expense of $400, do they really need more red tape?
Consumers can exchange high-fives after Cordray’s departure. But they shouldn’t take a victory lap until his anti-consumer rule making is reversed in its entirety. Congress, you have a job to do.
Alfredo Ortiz is the president and CEO of the Job Creators Network.
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