The recently formed Consumer Financial Protection Bureau (CFBP) is an arm of the US Treasury accountable to no one and funded independent of Congress, charged with taking consumer complaints (seemingly at random with no limiting criteria) and doing something about them (what, exactly, is uncertain). It should be renamed the FFEB.
The CFBP stated mission: "Our mission is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products." Yes, you are right, that mission statement has no meaning whatsoever. They do get more specific, however, with this list:
Congress established the CFPB to protect consumers by carrying out federal consumer financial laws. Among other things, we:
- Write rules, supervise companies, and enforce federal consumer financial protection laws
- Restrict unfair, deceptive, or abusive acts or practices
- Take consumer complaints
- Promote financial education
- Research consumer behavior
- Monitor financial markets for new risks to consumers
- Enforce laws that outlaw discrimination and other unfair treatment in consumer finance
For each bullet point above we need to ask some questions. To what purpose? At whose expense? For what benefit?
Effectively, CFPB forces banks, depositors, borrowers, credit and debit card users, and those paying income tax to pay to supposedly "protect" the financially illiterate from their own illiteracy as the cost of compliance and enforcement is necessarily built into the pricing of the products being regulated and taxpayers contribute to the nearly $500 million annual CFPD budget.
- There are already hundreds of books and reference sources for consumers to learn about the risks and consequences of financial commitments they may make.
- We already have extensive Federal and State consumer finance laws that cover essential disclosure and procedural requirements.
- We already have non-profit and industry group efforts to educate consumers on financial literacy in addition to Federal programs to be consolidated within CFPB.
So, why does the CFPB exist?
The CFPB's effective mission statement is "to use the unaccountable power of the Federal government to extort monetary and political concessions from companies offering consumer financial products and services — mortgages, credit cards, or any number of other consumer financial products."
I would think the above wording severe except for the realities of how the CFPB is actually operating. Two recent articles in the Wall Street Journal clarify that CFPB is merely a political entity.
"Consultants Snap Up Alumni of Consumer Watchdog Agency" confirms that the industry is already co-opting the loyalties of people who work for CFPB.
"Banks Seek a Détente With New Consumer Bureau" confirms the industry and CFPB management are working together in private to reach accommodations hidden from public view. In other words, "we will do the this if you do that" and all consumers of financial services as well as the general taxpayer pay for the cost of regulation, compliance, and the cost of the agency itself.
CFPB will contribute zero improvement in consumer education at the margin and will do nothing but increase costs to consumers and taxpayers. This is clear from readily observable voluntary consumer behavior the CFPB (and anyone else) can do nothing about. Two examples of such behavior are "rent to own" and State lotteries.
You can purchase a 60 inch Sharp LCD television with Wi-Fi for less then $1,000 today, or you can "rent to own" an equivalent television from Aaron Rents for 24 monthly payments of $142.98, totaling $3,431.51. Effectively, with "rent to own" you are borrowing $1000 for 24 months at a cost of $2,431 resulting in an Annual Percentage Rate of 164%. This is perfectly legal and fully disclosed today, yet there is a market for this, people voluntarily sign up for this.
Perfectly legal lotteries (the Powerball jackpot odds are one in 175 million) and other forms of legalized gambling exist. Over $57 billion in lottery tickets were sold in the US in 2011. The States permit lotteries and gambling to get a rake-off (money) from the the willingness of consumers to gamble (as it has been clearly demonstrated that such gambling would exist underground if illegal).
So, where is the Consumer Financial Protection Bureau to "protect" those poor souls "renting to own" and participating in legal lotteries and legal gambling? The only difference between consumers voluntarily using financial services and voluntarily buying lottery tickets/gambling is that there have been disclosure requirements governing financial services before CFBP existed and no disclosure requirements governing legalized lotteries and gambling. The absence of such disclosure results from the vested financial interest of the States. The States actually spend money advertising, telling you lotteries and gambling are "games" while CFPB (as a small example) requires banks to put signs on ATM's disclosing that there may be a fee for using that service (but you already knew that).
Those who established CFPB believing it would help consumers need to take a closer look at the real world. CFPB is just another Federal power grab over the financial industry and a self-perpetuating bureaucracy that adds cost and complexity for the very consumers its claims to "protect."
CFPB is another Federal bureaucracy that costs us half a billion to a billion dollars a year that does more harm than good and needs to be closed down.
Regards, Pete Weldon