Don’t scrap the CFPB. Turn it into the agency it was meant to be

Fifteen years ago last month, following the financial crisis, the Dodd-Frank Act was signed into law. One of the most significant changes ushered in under Dodd-Frank was the creation of a new federal agency tasked with consolidating 19 different consumer federal protection laws into a single new regulator, the Consumer Financial Protection Bureau.

The 2008 financial crisis was fueled by speculative and risky mortgage lending, a shadow banking system reliant on short-term funds to fund long-term assets and a regulatory system that had not kept up with the latest financial innovations — exposing significant regulatory gaps.

To address these gaps, Congress required banks to hold more capital, tightened mortgage rules and brought complex nonbank financial products out of the shadows. The sweeping 2,300 pages of Dodd-Frank led to tens of thousands of pages of regulations and more than an estimated 20 million private-sector man hours every year to comply with the current rules. 

Crucially, Congress charged the CFPB with enforcing federal consumer financial law “consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.” That mandate reflects a core truth: Consumers benefit when competition is fair and rules are applied evenly. But the CFPB hasn’t lived up to that standard.

There are some who point to the $21 billion returned to consumers as the best evidence of the success of the CFPB over its 15-year tenure. However, assessing the bureau’s success by the amount of penalties it has collected from companies is the wrong approach. Yes, when a company breaks the law and where there is true consumer harm, there should be redress for consumers. But no one would evaluate the referee of a basketball game by the number of fouls called or whether their favorite team won. Instead, the focus should be on whether the referee called a fair game and allowed the teams to compete within the appropriate rules.

The same is true for evaluating the CFPB. Focusing solely on how much money a regulator extracts from industry creates incentives for the CFPB to chase enforcement actions, monetary penalties and headlines — even if not justified. Increasingly, the CFPB has grown comfortable stretching its legal authority, branding conduct “unfair” or “abusive,” after the fact, and demanding penalties without giving the market appropriate notice or the opportunity to respond. That’s not regulatory rigor. It’s regulatory ambush. 

Instead, the CFPB should be evaluated on whether it meets its statutory mission of protecting and educating consumers, as well as if consumer protection standards are consistently applied across the industry — for both banks and nonbanks — to ensure a competitive marketplace. 

Under the bureau’s prior leadership, the last four years have been particularly driven more by politics than facts-based policy. The prior CFPB regularly overstepped the bounds of its statutory authority and did not follow the law in its rulemaking — all while issuing rules on everything from credit cards to overdraft that stood to increase costs for consumers and reduce their access to critical financial products and services. What’s worse, the bureau had at times created salacious headlines that often named and shamed companies and individuals that had nothing to do with the underlying cited enforcement action. Again, instead of focusing on real consumer harm, over the last four years in particular, the CFPB never missed an opportunity to demonize banks and regularly stretched the truth in doing so. The bureau had become a prime example of weaponizing the government, too often harming the very people it was meant to help.

I should be clear: This isn’t about helping banks. But banks aren’t just financial institutions. Banks — and their 2 million teammates across the country — are the engines of local economic growth, small-business lending and job creation. When Washington sidelines them with vague rules or surprise penalties, it doesn’t just hurt Wall Street. It weakens Main Street.

There have been calls to abolish the CFPB entirely. However, the bureau is required by law and, importantly, still has the potential to meet its statutory obligations to serve American consumers and ensure a fair and competitive marketplace.

Rather than deleting the CFPB, now is the time for the president and Congress to reform and reboot it into the agency that carries out its mission in an apolitical manner.

First and foremost, for the bureau to meet its statutory mission, it is imperative that its regulations be grounded in law, applied consistently, and based on data and facts. It should also be apolitically steadfast in meeting its mission, focused on areas of true consumer harm. 

As I recently told Congress, consumer protection is too important to abandon and too urgent to leave broken. What we need is a serious reboot, one that restores the bureau’s credibility, grounds its work in law and puts outcomes ahead of politics. I laid out several recommendations in my congressional testimony including: fixing its structure; requiring the bureau conduct rigorous cost-benefit analysis of its proposals, to assess the true impact to regulated entities as well as the consumer impact; overhauling the bureau’s flawed tools, starting with how it uses its public complaint database; and focusing its energy where it matters most — rooting out scams, fraud and predatory practices that do real damage to consumers

The good news is that there is a growing bipartisan recognition that the CFPB has become more political, which is ultimately not a good thing. There were also other areas of bipartisan agreement during the hearing, such as support for a bipartisan commission or board that could serve to create more credibility and stability of the bureau. 

Every consumer — no matter where or how they bank — deserves clear, consistent protections enforced by an independent regulator. I urge Congress and the White House to focus their efforts on rebooting the CFPB into a credible, durable regulator that follows the law and puts people over politics.

The CFPB was built to stand up for consumers. With the right reforms, it still can.