President Donald Trump will soon get a chance to remake the Consumer Financial Protection Bureau, one of the signature creations of the 2010 Dodd-Frank financial reform law. The current director, Richard Cordray, has just announced his intention to step down.
It’s a good moment to review what the bureau is for, and why it matters.
As recently as a decade ago, the U.S. had no single regulator tasked with looking out for the interests of consumers in financial markets. Fragmented oversight allowed all kinds of bad behavior to fall through the cracks. Mortgage brokers hid the true terms of loans in piles of nearly indecipherable documents. Banks changed the order of transactions to extract the maximum overdraft fees from poor customers. Payday lenders offered products designed to trap people in an unending cycle of debt.
After the 2008 financial crisis, renewed attention on such abuses prompted Congress to create an entirely separate regulator. To avoid the bickering that can paralyze agencies such as the Securities and Exchange Commission, legislators gave it a single director instead of a bipartisan group of commissioners. To ensure adequate resources, they funded it from the coffers of the Federal Reserve rather than through the often fraught appropriations process.
Cordray has accomplished a lot. The CFPB designed new, simpler mortgage-loan disclosures. It shed light on banks’ overdraft practices. It created the first federal rules to make payday lending less predatory. It gave the public reams of valuable information, such as a database that allows consumers to compare credit-card agreements. Its practice of publishing complaints pushed financial institutions to be more responsive. Its investigation of Wells Fargo brought national attention to the fake-accounts issue.
For the most part, Cordray avoided overreaching. Although some rules did unduly burden smaller banks, the bureau has listened to complaints and acted on them. (It modified the payday-lending rules, for instance.) Not surprisingly, though, its efforts have met resistance. Financial lobbyists want to shut down the complaint database. A Treasury report cited “excesses and abuses,” and House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, went so far as to call it a “rogue agency.”
The president could now appease the CFPB’s critics by appointing a more compliant director. That would be a shame. Some of its practices (in particular, preferring discretionary enforcement over explicit rule-making) are less than ideal and ought to be revisited; in other areas (such as auto lending and credit reporting) its authority should be expanded. What’s not required, though, is a regulator ready to do the industry’s bidding.
Overall, Cordray’s CFPB has done a good job for U.S. consumers. His successor should aim to do the same.