Stupid Things Happen: CFPB Edition
I have not come to defend the Consumer Protection Financial Bureau, but to bury it--mangled from Marc Antony's speech after the murder of Julius Caesar.
On October 19 three sage judges in the Fifth Circuit made an historic ruling and provided a blessing unto the people. The CFPB is illegally funded, they said, and the payday rule is no more. You may have seen the body yourself as it was carried triumphantly from the court by the Community Financial Services Association of America.
The Federal Reserve, who has been compelled this 11 long years, to provide 12% of its monies to the bureau is not allowed by the Constitution, that wise, and ever relevant document. To wit, the CFPB cannot be funded outside of Congress, because no funding may be outside of Congress. (We shall forgo consideration that the Federal Reserve funding itself is outside of Congress, that is, alas, for another day.)
Some of you have lamented, correctly, that should this decision stand the CFPB draws ever closer to never again making or enforcing rules. For without funding, none of their past could have existed. Thus through the incontrovertible logic of the court, a rule made while being non-existent is not a rule and an enforcement action is unenforceable. Quod erat demonstrandum.
You may have heard the esteemed Senator Pat Toomey shout, "“The Fifth Circuit’s decision to invalidate the CFPB’s payday lending rule because it is the product of an unconstitutional funding scheme calls into question the validity of all of the agency’s actions to date."
Hooray! I hear the crowd cry out, their togas speckled with crimson. The CFPB is an unholy demon of out-of-control regulatory overreach hurting financial lenders and their customers who have lost out on mortgages and loans.
Indeed, the CFPB, villains to the core, attempted to hurt our fair payday lenders and that was the the heart of the matter before the court. The diabolical souls wished to stop honest citizens of the ability to have loans to tide them over for just a couple of weeks between paychecks.
And what excellent loans these are: an average of 391% and are uncapped in the 5 states with without any restrictions, such as Texas. (Remember Texas?)
Why should a regular Joe not be able to borrow $300 today to pay back $370 in two weeks or $1,001 in five months? It is only fair, is it not?
But that was not the CFPB's dirty little trick. They aimed not to put limits on the loans. (It is a mere 12 states that ban them.) The CFPB instead colluded amongst themselves to write a rule that required saintly lenders to verify that borrowers had the means to pay back. Why, if they had the means to pay, why would they be borrowing in the first place? Is this not logic?
It was the brilliant Mick Mulvaney, a man who could direct both the OMB and CPFB at the same time, which is seven acronym letters closer to glory than us normal folk, and who, in working a mere few hours a week (per Wikipedia) was able to remove the thorn of "underwriting rules". The evil is in the name, right there, "under", as plain as day.
I am almost hesitant to share the deep truth here. The darkness from the fiery pit that brought the Community Financial Services Association of America to the door of the appellate court. To seek remedy after losing their original lawsuit, twice.
Because, I shudder again, this is what was at stake:The ability of lenders to place an automated transfer request to the borrowers bank account a third time after two failed prior attempts.
The Nacha organization that runs the automated clearing house, or ACH, network of electronic payments between banks clearly states, CLEARLY STATES, that the limit should be three times.
And the, again, wise, oh so wise, judges saw this and agreed and said,
In sum, we conclude that the Payment Provisions are not arbitrary and capricious, either in their entirety or in their two contested applications. As Plaintiffs fail to show that the Payday Lending Rule’s promulgation violated the APA, summary judgment in favor of the Bureau on this claim was warranted.
So sagacious! So keenly discerned! Do you not see? Let me repeat for the clarification of all:
The court ruled that the CFPB had linked the actions of payday lenders to punitive overdraft fees on the impoverished, had good and research evidence to support limiting repeated attempts to automatically collect from these same folk, and had no concerns with the value of the rule to limit financial harms.
领英推荐
The one and only issue they used to overturn the pay day rule that protected, in a limited, barely noticeable, stripped down, obviously minimal way, the working poor was that it was funded directly by Congress but via the Federal Reserve Bank, which is also not funded by Congress.
An Aside About the Impact of the CFPB and Why Some In Government Hate It
As I have noted many times before, regulatory penalties are a cost of doing business for financial firms. On average 0.57% of revenue has been fined over the past dozen years. So it can't be that financial firms want the regulator gone because of how effective it has been.
However this is not true for all companies. As I found here:
Ocwen and CashCall had 17% and 13% fined. That's a more impactful hit. Indeed it is the smaller, and more dubious, firms that get a disparate impact from the CFPB and from the cost of simply having to staff a Compliance department.
Far be it from me to suggest that it is in these company's interests to lobby, sue, and donate to a cause that it closer to their bottom line. It may even be in the interest of larger firms. But again, I'm not saying it. But these people are:
Another Aside About Regulators
I'm not saying the CFPB is perfect. Far from it. There's still a lot of politics in the actions of all regulators, it's unclear how much regulatory penalties are able to bring safety and consumer protection to the marketplace, and regulators suffer from the same problems any human endeavor suffers from--namely doing dumb, myopic, knee jerk things.
But the alternative is laissez faire, and that is demonstrably worse.
So Let The Watch Begin
Set your court calendars. Keep your lights trimmed and burning. Prepare ye next, all ye terrible CFPB regulations:
Will This Really End All Consumer Regulation?
Yes, it's fun (depending on your view of fun) to imagine if the CFPB appeals this decision to the Supreme Court and the justices there strike down the section of Dodd Frank creating the CFPB--thereby leaving all future and past CFPB rules and fines up for litigation.
But that's crazy talk. It would leave the US financial system in a chaotic state never before witnessed. Is it a free for all? Not a free for all? Markets would go haywire.
Many enemies of the CFPB argue that it should be funded by Congress rather than independently. It's not that they don't want to protect consumers, but they want to do so in a way that is more like the SEC.
So, I mean, nobody in their right mind would fail to consider the impact of erasing a standing organization like the CFPB without a firm plan in place for handling the fallout. And government is responsible, careful, people, right? Right?