The Case against the Consumer Financial Protection Bureau Murray - The Case against the...

ISSUE ANALYSIS 2017 NO. 9

The Case against the Consumer

Financial Protection Bureau

Unconstitutionally Structured and Harmful

to Consumers

By Iain Murray

September 2017

The Case against the Consumer Financial Protection Bureau 1

The Case against the Consumer Financial Protection BureauUnconstitutionally Structured and Harmful to Consumers

By Iain Murray

Executive SummaryWho could be against consumer protection? The2007-2008 financial crisis saw record numbers ofmortgage foreclosures, left large numbers of Americans“underwater”—owing more in mortgage principalpayments than their homes were worth—and manymore carrying more credit card debt than it seemedthey could afford. Consumer financial protection wasthe motivation behind the creation of the ConsumerFinancial Protection Bureau (CFPB), a new agencydesigned to protect American consumers from badactors in the financial services industry.

The CFPB was meant to protect American pocketbooksand property. However, its founders—the drafters ofthe Dodd-Frank Act of 2010—felt that in order to doso, it had to be protected from political interference.That resulted in the agency being insulated fromaccountability to the president, Congress, and thecourts. Dodd-Frank gave the CFPB three mechanismsfor avoiding accountability:

• Its funding comes not from congressionalappropriations but from the Federal Reserve,which is to supply whatever the directorrequests up to a certain amount;

• It is headed by a single director appointed for afixed term of five years who may not be firedby the president except for “cause,” such asdereliction of duty or malfeasance; and

• The courts are required to give extra deferenceto the CFPB’s decisions in some cases.

These provisions violate constitutional norms ofchecks and balances on executive power and have led

the CFPB to abuse its power, including by trying to regulate in areas where its statutory authority is expressly limited.

For example, the CFPB attempted to regulate auto lenders, which are exempt from CFPB oversight under Dodd-Frank. The CFPB alleged that an indirect auto lender’s markup and compensation policies may be sufficient to trigger liability under the Equal Credit Opportunity Act (ECOA) if the lender’s credit decisions result in discriminatory outcomes. The CFPB then issued guidance on how auto finance firms can avoid being found in breach of the ECOA, indirectly regulating auto dealers by prescribing what kind of financing they may offer. An independent study of the CFPB’s methodology concluded that it severely overestimated the number of minority consumers supposedly harmed by the practice. This led to white consumers getting refund checks for supposed racial discrimination against them as African-Americans. Cordray admitted that the CFPB’s methodology contained mistakes. An agency subject to adequate constitutional oversight would probably not have been tempted to make these mistakes.

The CFPB has also failed in its core mission of protecting all consumers. For example, while it celebrated the fines it levied on Wells Fargo over its “upselling” scandal—in which bank staffers misled customers into opening new accounts for new services, and in some cases fraudulently opened accounts in their names without their knowledge—it failed to notice the bank’s abusive practices until it was alerted to them by The Los Angeles Times and California regulators, despite the bank being under Bureau supervision at the time.

2 The Case against the Consumer Financial Protection Bureau

Consumers have actually been harmed by CFPB rules.This is because it was set up with a one-size-fits-allmentality at its core. It was empowered to create rulesthat would apply to financial products in every case,based on the false premise that a government agencycan design the appropriate financial products for a largeand diverse society. This has denied many consumersaccess to useful, money-saving products. Consumerprotection is ill-served if consumers are “protected”from getting access to products that suit their individualcircumstances, or are forced to pay more for a lessdesirable financial product.

One of the arguments advanced in favor of creating aconsumer financial protection agency was that it wouldfulfill a purpose analogous to the Consumer ProductSafety Commission. The argument was that, just as afaulty toaster could lead to your house burning down,so a faulty mortgage could lead to you losing yourhouse. The analogy was faulty from the start. A faultytoaster design is faulty for everyone, but financialproducts serve different customers with different needs.For example, for someone in the right circumstances, a30-year, interest-only, adjustable rate mortgage can bea prudent choice, even if it is wrong for someone elsewho does not plan for possible fluctuations in interestrates. Banning the mortgage would help the latterborrower, but harm the former by forcing her to takeout a mortgage that costs more, allocates the costs overtime in a more burdensome manner, or fails to takeaccount of other circumstances, such as a plan to movein the near future.

Moreover, because of the complexity of financialproducts, the CFPB’s rules have tended to be extremelylong and complicated, imposing a huge complianceburden on financial institutions—which pass on thosecosts on to consumers in the form of higher fees orreduced product choices.

At the very least, the CFPB needs significant structural reform to alleviate these problems and bring it within constitutional constraints. The CFPB’s poor constitutional design insulates it from accountability to Congress, the president, and the courts. That lack of accountability predisposes the CFPB director to abuse the agency’s authority.

The CFPB is too problematic to fix by relying on better discretion from its director and other personnel. Even if it were brought under proper constitutional oversight, its one-size-fits-all approach is deeply at odds with the needs and aspirations of millions of individual American consumers.

Current court cases, such as the PHH case currently being reheard, could provide some relief to the constitutional problems by, for example, reaffirming the previous decision that the director should be answerable to the president, although that would leave outstanding the constitutional objections in relation to the role of Congress and the courts.

One legislative solution would be to recognize the inherent difference between consumer product protection and financial protection and abolish the agency, transferring consumer protection duties back to the banking supervisors and the Federal Trade Commission.

If Congress is unwilling to take this step, the CFPB at least could be brought back within constitutional constraints and made subject to adequate supervision by the president, Congress, and the judicial branch, while being required to submit adequate justification for its rules to the Office of Management and Budget and to Congress for higher cost rules. This should at least assert some discipline over the agency.

The CFPB represents a drastic change to the way Americans are governed. The remedy for its abuses needs to be equally drastic.


IntroductionWho could be against consumerprotection? The 2007-2008 financialcrisis saw record numbers of mortgageforeclosures, left large numbers ofAmericans “underwater”—owing morein mortgage principal payments thantheir homes were worth—and left manymore carrying more credit card debt thanit seemed they could afford. Consumerfinancial protection became theanimating thought behind the creationof a new agency designed to protectAmerican consumers from bad actorsin the financial services industry.

The Consumer Financial ProtectionBureau (CFPB) was meant to protectAmerican pocketbooks and property.However, its founders—the drafters ofthe Dodd-Frank Act of 2010—felt thatin order to do so, it had to be protectedfrom political interference. Dodd-Frankinsulated the CFPB from accountabilityto Congress, the president, and thecourts through three mechanisms:

• Its funding comes not fromcongressional appropriations butfrom the Federal Reserve, whichis to supply whatever the directorrequests up to a certain amount;

• It is headed by a single directorappointed for a fixed term of fiveyears who may not be fired bythe president except for causessuch as dereliction of duty ormalfeasance; and

• The courts are required to give

extra deference to the CFPB’sdecisions in some cases.

These provisions violate constitutionalnorms of checks and balances onexecutive power. They have led theCFPB to abuse its powers, as neitherthe executive nor the legislative branchhas meaningful oversight over it.

The CFPB was founded on the falsepremise that a government agency candesign the appropriate financialproducts for a large and diverse society.One of the arguments advanced infavor of creating a consumer financialprotection agency was that it wouldfulfill a purpose analogous to theConsumer Product Safety Commission.The argument was that, just as a faultytoaster could lead to your house burningdown, so a faulty mortgage could leadto you losing your house.1 The CFPBwould prevent that.

The analogy was faulty from the start.As George Mason University lawprofessor Todd Zywicki noted, “loansare not toasters.”2 A faulty toasterdesign is faulty for everyone. But forsomeone in the right circumstances, a30-year, interest-only, adjustable ratemortgage can be a prudent choice, evenif it is wrong for someone else whodoes not plan for possible fluctuationsin interest rates. Banning the mortgagewould help the latter borrower but harmthe former by forcing her to take out amortgage that costs more, allocates the

The CFPBwas foundedon the falsepremise that agovernmentagency candesign theappropriatefinancialproducts fora large anddiverse society.


costs over time in a more burdensomemanner, or fails to take account ofother circumstances, such as a plan tomove in the near future.

The CFPB was set up with thisone-size-fits-all mentality at its core.It was empowered to create rules thatwould apply to financial products inevery case. Because of the complexityof financial products, its rules havetended to be extremely long andcomplicated, imposing a hugecompliance burden on financialinstitutions—which pass on those costson to consumers in the form of higherfees or reduced product choices.

This has denied many consumersaccess to useful, money-savingproducts. Consumer protection is ill-served if consumers are “protected”from getting access to products that suittheir individual circumstances perfectly,or if consumers are forced to pay morefor a less desirable financial product.

At the very least, the CFPB needssignificant structural reform to alleviatethese problems and bring it withinconstitutional constraints. It may bebetter to abolish the agency entirely andreturn the job of consumer protectionto market competition overseen bycourts of law and other agencies.

Little Oversight from CongressThe appropriations process, wherebyelected officials fund federal agencies,

is a vital check on executive power.Because of the funding mechanism setup under Dodd-Frank, the CFPB is notsubject to Congress’ power of thepurse. The CFPB’s annual budgetamounts to approximately $650 million(2017) that Congress cannot touch orregulate.3 Instead, the CFPB gets itsfunding from the Federal Reserve, thedollar amount of which Congress canneither review nor deny.4

As a result, the CFPB has failed toexercise fiscal discipline. For example,current CFPB Director Richard Cordrayauthorized the expenditure of $215million for renovating a new head-quarters in Washington, D.C., on abuilding valued at just $150 million.The refurbishment appears extravagant,and the House Financial ServicesCommittee found5 that it cost morethan three times per square foot what atypical D.C. luxury renovation would.6

When questioned by Rep. Ann Wagner(R-Mo.) about this extravagantexpenditure in May 2015, Cordrayresponded, “What does that matter toyou?” Wagner responded that it mattersto taxpayers.7 Cordray’s lavishredecoration is ultimately being paidfor by holders of U.S. debt, to whichtaxpayers are indirectly exposed. Thatshould matter to lawmakers, butCongress cannot exercise its power ofthe purse over the CFPB, so there islittle officials can do to bring theagency to account.

Because ofthe fundingmechanismset up underDodd-Frank,the CFPB isnot subject toCongress’ powerof the purse.


Little Oversight fromthe PresidentThe Dodd-FrankAct made it impossiblefor the president to carry out hisconstitutional obligation to “take carethat the laws be faithfully executed”when it comes to the CFPB. A CFPBdirector who chooses not to complywith statutory obligations or whoabuses his authority cannot be removedby the president except under extremelylimited circumstances. Dodd-Frankgoes beyond the “for cause” standardfor removal from most independentagencies and says the president mayonly remove the director “forinefficiency, neglect of duty, ormalfeasance in office.”8 Although theCFPB is technically labeled a “bureau”within the Federal Reserve and receivesits operating funds from the Fed, theFed has no control over its actions.

This insulates the director fromoversight, checks, or balances on hisdecisions. Traditionally, as the D.C.Circuit Court of Appeals noted inPHH Corp. v CFPB, if Congress optedto make an agency independent ofpresidential authority, it utilized acommission structure, with membersfrom both the president’s party and theopposing party to ensure internaldeliberation and reasoned decisionmaking.9

The Dodd-Frank Act gave the CFPBdirector complete control of the agency,without any oversight. As the courtnoted in PHH, the CFPB director is the

“single most powerful official in theentire U.S. Government, other than thePresident.” It found that this extensive“unilateral power” made the Bureau“structurally unconstitutional.”10

These considerations led the court torule that the provisions of Dodd-Frankshould be amended to cause the directorto be “under the ultimate supervisionand direction of the president.” (Thecase is being reheard at this writing.)

Reduced Oversight fromthe CourtsDodd-Frank directed the courts to giveextra deference to the CFPB should itcome into a legal dispute. Section1022(4)(B) of Dodd-Frank legislatesthat “the deference that a court affordsto the Bureau with respect to adetermination by the Bureau … shallbe applied as if the Bureau were theonly agency authorized to apply,enforce, interpret, or administer theprovisions of such Federal consumerfinancial law.”11 In other words, thecourt should look to the CFPB itself tounderstand how the law should beinterpreted, with even longstandinginterpretations from other financialagencies rendered null and void.

The CFPB’s insulation from judicialsupervision has had a significant anddeleterious effect on precedent anddue process. If courts are to defer toagencies’ interpretation of the law andregulations, as they are presumed to do

The Dodd-FrankAct gave theCFPB directorcomplete controlof the agency,without anyoversight.


under the Chevron and Auer doctrines,then ignoring all interpretations of thelaw by other agencies that werepreviously responsible for them willresult in situations like the PHH case:The CFPB can essentially rewrite alongstanding regulation in order tomake legal conduct illegal, and thecourts are ordered to accept that.12 Thisis, as the court found in PHH, a breachof due process.

Moreover, other prudential financialagencies, on which financial institutionsrely on prudential matters, have theirown interpretations of the law. TheDodd-Frank Act instructs courts toignore those interpretations. This caneasily lead to conflicts, even in situationswhere the CFPB’s interpretation mightseem arbitrary in countermanding theother agencies’ interpretations.

For instance, in 2014, in its orderagainst PHH, the CFPB relied on thisauthority to retrospectively modify theDepartment of Housing and UrbanDevelopment’s (HUD) longstandinginterpretation on whether mortgagelenders could use subsidiary reinsurersto provide mortgage insurance.13 Thecourt found that such modificationdeprived PHH of its due process rights.

This authority also compounds theproblem of unilateral, uncheckedpower. In a commission, there isinternal debate between commissionersabout the rewriting of a rule. In theexecutive branch, other agencies

weigh in with concerns. The CFPBdirector faces fewer and weaker checksand balances and can rewrite rulespractically at whim. Predictably, thisunconstitutional structure has led to theCFPB abusing its power, including inways that threaten constitutional rights.

In effect, there is only one effectivecheck on the CFPB’s authority—nullification of a rule by the FinancialStability Oversight Council (FSOC),another regulator created by Dodd-Frank, only if it is determined by FSOCto pose a substantial threat to the safetyand soundness of theAmerican financialsystem. This is a very high hurdle, madeeven more difficult by the requirementof a supermajority vote of the Council’smembers, of whom the CFPB directoris one.14 Moreover, the CFPB directorserves on the board of the FederalDeposit Insurance Corporation,another voting member of FSOC.

The lack of adequate structural checksand balances on the CFPB has led topoorly designed rules that serve toexpand the agency’s power instead ofprotecting consumers. For example,the agency has stifled the free speechrights of those it regulates. It hasexceeded its statutory authority toregulate industries and firms that are faroutside any reasonable understanding ofits jurisdictional powers. And it hasput consumer privacy and data at riskdue to its voracious quest for consumerfinancial information.

The lackof adequatestructural checksand balanceson the CFPBhas led to poorlydesigned rulesthat serve toexpand theagency’s powerinstead ofprotectingconsumers.


Without adequatepolitical oversight,regulatoryagencies willtend to expandtheir power tothe maximumextent possible.Unsurprisingly,the CFPB,lacking in anymeaningfuloversight, hasdone just that.

For all that, there is little evidencethe CFPB has done much to protectconsumers from fraud—as the agency’sslow response to the Wells Fargo scandaldiscussed below indicates. Meanwhile, ithas reduced access to consumer credit,especially for lower incomeAmericans,and adopted policies that havesystematically advantaged large banksrelative to small banks.

Prior Restraints on SpeechThe CFPB’s lack of accountability hasenabled it to attempt to restrict one ofAmericans’most precious constitutionalrights, the right to free speech. TheCFPB’s Disclosure of Records andInformation Rule is essentially a gagrule for those who receive a requestfor information from the Bureau.

The rule establishes procedures usedby the public to obtain informationfrom the Bureau under the Freedom ofInformation Act, the Privacy Act of1974, and in legal proceedings.15 In2016, the CFPB proposed amendmentsto this rule. The amended rule providesthat, in the case of a financial institutionreceiving a criminal investigationdemand (CID) or similar requirement,“[R]ecipients of confidentialinvestigative information have the samediscretion with respect to disclosingconfidential investigative informationthat they currently have with respect toconfidential supervisory information.”16

Translated from legalese, that means

the rule imposes prior restraints onspeech for those receiving a civilinvestigative demand.

This means the recipient of aninvestigative request will have limitedpower to share it with colleagues andboard members, and must seek thepermission of a Bureau official to talkabout it to others. Arthur B. Spitzer ofthe American Civil Liberties Unionnotes that this is “something that courtshave time and again said violates theFirst Amendment.”17 As the Bureaureserves the right to post motions toquash CIDs on its own website, Spitzerfurther comments:

It is difficult to imagine thejustification for a system wherea CID recipient is barred fromposting information about aCID it has received on its ownwebsite, but the Bureau will postinformation about the same CIDon the Bureau’s website if therecipient has the temerity to file amotion to quash the CID—even ifthe motion to quash is successful.18

The CFPB’s attempt to do this and itsrepeated attempts to exceed statutoryboundaries demonstrate its proclivity tooverreach—which its unconstitutionalstructure makes possible.

Exceeding Statutory AuthorityWithout adequate political oversight,regulatory agencies will tend to expand


The CFPB haseven attemptedto rule in areaswhere its statutoryauthority isexpressly limited.

their power to the maximum extentpossible.19 Unsurprisingly, the CFPB,lacking in any meaningful oversight,has done just that. Courts have foundthat the CFPB has exceeded itsstatutory authority.

For example, in August 2015 theCFPB issued a criminal investigativedemand to the Accrediting Council forIndependent Colleges and Schools(ACICS), even though accreditingcolleges is not a financial service underthe jurisdiction of the CFPB. The CID’sstated purpose was “to determinewhether any entity or person hasengaged or is engaging in unlawfulacts and practices in connection withaccrediting for-profit colleges.”20

In April 2016, the D.C. District Circuitfound that the CFPB’s authority toinvestigate for-profit schools’ lendingactivities did not entitle it to investigatepotential lawbreaking in accreditation.Despite ACICS repeatedly making itclear to the Bureau that it had noconnection with student loans, theCFPB refused to remove the CID andwent to court to enforce it. It told thecourt that it was not required to “acceptat face value” ACICS’ statements ofits activities and therefore had thepower to assess them independentlyby investigation. The court’s responseto this argument: “Please.”21

The CFPB has even attempted to rulein areas where its statutory authorityis expressly limited. For example,the Bureau may not exercise any

rulemaking, supervisory, enforcement,or any other authority, including anyauthority to order assessments, overa motor vehicle dealer that ispredominantly engaged in the sale andservicing of motor vehicles, the leasingand servicing of motor vehicles, orboth. The express instruction fromCongress, laid out by Section 1029 ofDodd-Frank specifically excludes autolenders from CFPB oversight.22

Nevertheless, the CFPB attempted toregulate auto lenders by issuing aguidance document to the financialfirms that work with auto dealers toprovide better rates to their customers.23

Citing the Equal Credit OpportunityAct (ECOA), the CFPB alleged thatan indirect auto lender’s markup andcompensation policies may be sufficientto trigger liability under the ECOA ifthe lender’s credit decisions result indiscriminatory outcomes. The disparitiestriggering liability could arise eitherwithin a particular dealer’s transactionsor across different dealers within thelender’s portfolio. Thus, an indirectauto lender that permits dealer markupand compensates dealers on that basismay be liable for these policies andpractices if they result in any lendingdisparities, even ones beyond thelender’s control. The CFPB thenissued guidance on how auto financefirms can avoid being found in breachof the ECOA, indirectly regulatingauto dealers by prescribing what kindof financing they may offer.


An independent study of themethodology by which the CFPBhad found the alleged discriminationconcluded that it severely overestimatedthe number of minority consumerssupposedly harmed by the practice.24

This led to white consumers gettingrefund checks for supposed racialdiscrimination against them asAfrican-Americans.25 Cordray admittedthat the CFPB’s methodology containedmistakes.26

Violating PrivacyThe CFPB’s tendency to overreach haseven threatened Americans’ financialprivacy. Acting on its own and withoutany authorization from Congress, it has

created massive databases of mortgageand credit card information that mayrival those of the National SecurityAgency in both size and intrusiveness.Every month, the Bureau gathersinformation on virtually every aspectof Americans’ financial affairs.

By claiming it needs this voluminousdata to research patterns of behavior inconsumer financial transactions, theagency is putting Americans’ financialinformation at risk. The GovernmentAccountability Office (GAO) hascriticized the CFPB’s security practicesin relation to this data because it hadnot “fully implemented a number ofprivacy control steps and informationsecurity practices.”28 The GAO notedthat “CFPB lacks written procedures

By claimingit needsvoluminousdata to researchpatterns ofbehavior inconsumerfinancialtransactions,the agencyis puttingAmericans’financialinformationat risk.

Examples of CFPB Data Gathering Practices

Type of Data Gathered Number of Records FrequencyAutomobile sales (matching stateDMV records with consumercredit data) 700,000 vehicles MonthlyConsumer credit reports: nationallyrepresentative sample 1.7 million individuals Monthly and QuarterlyCredit cards: individual consumers’account-level data, with links tocredit reporting 25-75 million accounts MonthlyMortgages: loan-level data from 29 million active loans;large servicers 173 million total loans MonthlyOnline payday loans: loansummaries, matched with consumercredit data 300,000 borrowers One-timeOverdraft fees: account andtransaction-level data randomly 2 million accounts andsampled from checking accounts their transactions One-timePrivate student loans: loan-leveldata on all education loanoriginations from 2005-2011 5.5 million loans One-timeSource: GAO analysis of CFPB information.27


The PHH caseprovides a goodexample of howthe CFPB’sstructure leadsto arbitrarybehavior.

and comprehensive documentation fora number of processes, including dataintake and information security riskassessments,” and that the Office ofManagement and Budget had concernsabout the Bureau’s compliance withPaperwork Reduction Act requirementsin relation to the millions of credit cardaccounts on which it collects data. TheGAO concluded these difficulties“could hamper the agency’s ability toidentify and monitor privacy risks andprotect consumer financial data.”29

Not only does this data collectionexercise put individuals’ financialprivacy at risk, it appears to do sowithout any discernable benefit. Forexample, in 2014 the CFPB collectedinformation on 900 million credit cardaccounts, representing 85 percent ofall such accounts in the U.S. TheBureau justified this request simply bysaying: “Account-level informationprovides unique insight intounderstanding changes in the creditcard market. … Such informationmaintained in a database can be usedto create both present-day snapshotsand historical trend data and help theCFPB understand the cost of creditand how the costs are realized byconsumers.”30 George Mason UniversityEconomics Professor ThomasStrattmann noted that statisticalsampling techniques would requiredata from only about 1 percent ofaccounts to achieve such results.31

Arbitrary Decision MakingThe PHH case provides a good exampleof how the CFPB’s structure leads toarbitrary behavior.32 In that case, anadministrative law judge foundmortgage lender PHH Corporationliable for $6.4 million in disgorgementof supposedly illegally gotten profits.On his own discretion, CFPB DirectorCordray upped that sum to $109 million,increasing the fines by more than1,700 percent. The court found that theCFPB reversed longstanding policyfrom the Department of Housingand Urban Development, whichadministered the underlying law beforethe Bureau’s creation in the Dodd-FrankAct of 2010. It then proceeded to applythis new interpretation of the lawretroactively back to 2008, violatingPHH’s due process rights, whiledeclaring there was no statute oflimitations on its powers. Presumably,the agency trusted that the statutorydeference it enjoys under Dodd-Frankwould preclude the courts from reiningit in.

Another example of the CFPB’sarbitrary decision making is its cavalierapproach to cost-benefit analysis. TheDodd-Frank Act directs the Bureau toconduct such analyses for its rules,asking it to calculate:

The potential benefits and costs toconsumers and covered persons,including the potential reductionof access by consumers to


While quantifiedcost-benefitanalysis hasits flaws, it isbetter thanwhat the CFPBhas displayedto date.

consumer financial products orservices resulting from such rule;and the impact of proposed ruleson covered persons, as describedin section 1026, and the impact onconsumers in rural areas.33

While the CFPB issues what it callscost-benefit analyses with eachrulemaking, these fall far short of thisrequirement. Costs and benefits arediscussed in a qualitative manner, withlittle or no attempt to quantify eithercosts or benefits, and often ignoringpotentially large categories of costs.For instance, in a draft rule on thesubject of small-dollar loans, the CFPBdismissed the possibility that customersmight go to loan sharks if small-dollarloans become too difficult to obtain.34

While quantified cost-benefit analysishas its flaws, it is better than what theCFPB has displayed to date. A rulewith costs that outweigh its benefitsis clearly damaging and should berepealed. By avoiding rigorousquantification, the CFPB has been ableto press ahead with rules based on itsgeneral sense that the rule wouldprovide some benefit, even if thatbenefit is likely to be outweighed bycosts. This is the very definition ofarbitrary behavior.

The U.S. Constitution’s framework ofchecks and balances was put in placeto protect Americans from abuses ofgovernment power. By failing to followthis framework when it created the

CFPB, Congress set the stage for itsall-powerful director to act arbitrarily.So it has proved.

However, these constitutional problemsare not the only reason why the CFPBneeds drastic reform. It is failing toprotect consumers, and in many casesis actively harming them, while turninga deaf ear to critics.

CFPB Fails to Protect ConsumersThe CFPB touts its protection ofconsumers by pointing to its enforcementactions, saying, for example, that ithas returned $12 billion in funds to29 million harmed consumers over itssix years of operation (which worksout to about $70 per harmed consumerper year).35 The case is not that clearcut, however. While some of the caseswere certainly justified, some mayhave involved overreach by the CFPB.Even in what may be the Bureau’smost celebrated victory over a genuinebad actor, the credit actually belongselsewhere.

The Wells Fargo CaseMany of the CFPB’s defenders36 havepointed to the huge $185 million finethe Bureau’s enforcement arm leviedon Wells Fargo bank for the “upselling”scandal, in which bank staffers misledcustomers into opening new accountsfor new services, and in some casesfraudulently opened accounts in their


The CFPB’s largefine will be paidfor ultimately byWells Fargocustomers—exactly thepeople theBureau wassupposedto protect.

names without their knowledge.37 Theyclaim that the case shows the CFPB hasbeen effective in protecting Americanfinancial consumers.

This is not the case. The facts showthat tension between the CFPB’ssupervisory and enforcement arms ledto a failure to catch Wells Fargo’swrongdoing until after it was revealedin the media. That tension arisesbecause any one company can only bethe subject of either a supervisory orenforcement action at any one time. TheCFPB’s supervision personnel tookcharge of Wells Fargo in 2011, yet thecompany’s malfeasance escaped itsnotice until December 2013, when itwas made public by a Los AngelesTimes investigation.38

Even after this revelation, the CFPB’ssupervision division failed to investigatethe company’s practices with on-siteexaminations and continued to claimthe bank as its territory, fending off theenforcement division’s attempts toinvestigate until the Los Angeles cityattorney filed suit against the bank inMay 2015.39 It appears that only afterthat could the Bureau’s enforcementarm take over. The enforcement actionthat followed used evidence from theinvestigations of other agencies—theLos Angeles city attorney and theOffice of the Comptroller of theCurrency—to support its huge fine.The CFPB had missed the malpractice,despite having supervisory powers otheragencies lacked. Then it followed the

pack in exercising its enforcementpowers. The CFPB’s large fine will bepaid for ultimately by Wells Fargocustomers—exactly the people theBureau was supposed to protect.

CFPB Rules Harm the MiddleClass by Chilling InnovationAs noted, the CFPB was founded withthe task of protecting Americanconsumers from harm in financialtransactions. However, many of theregulations promulgated by the CFPBare working against consumers, anddisproportionally against the leastfortunate. Even worse, the agencyseems bent on protecting consumersfrom themselves at the expense oftheir well-being.

One example is the CFPB’s rules onprepaid debit cards, which many peopleuse instead of bank-issued cards tied toaccounts.40 Some individuals directlydeposit their wages onto such cards.Prepaid cards are more likely to be usedby people who are African-American,young, unemployed, disabled, or verylow income (under $15,000 a year).41

These demographics are often referredto as the “underbanked,” who findtraditional banking services unsuitedto their circumstances. Surveys havefound that prepaid cards are popularbecause they allow people to controltheir finances, avoid overspending,and avoid bank fees.42

The CFPB, however, decided thatconsumers did not know enough about


some of the features of their cards,which led to a 1,700-page rule toregulate these features and theirdisclosures.43 As can be expected witha 1,700-page rule, the effects will besignificant enough to disrupt theprepaid card market, with compliancecosts of at least $1 billion, accordingto an estimate by the American ActionForum.44 Those costs will be passedon to prepaid consumers in the shapeof increased fees—exactly what theconsumers were trying to avoid inchoosing to use prepaid cards.

While many customers use their cardsto avoid overdrafts and would preferto have transactions declined ratherthan pay a service fee for an overdrawnprepaid card, a sizeable minority—about 30 percent of users—are happywith paying the fee.45 These consumerswant to make sure that all their smalltransactions are covered to keep theirhouseholds running. The rule effectivelyoutlaws overdraft fees on prepaidcards by redefining overdrafts as“credit,” to be regulated separately(which is also incompatible with howthe Truth in Lending Act has beeninterpreted over the past 40 years).46

Of course, the underbanked are muchless likely to have access to credit atall, meaning that yet another source ofemergency funding for them is to beregulated out of existence by the rule.

Consumers can also expect to loseaccess to some of these cards’ popularfeatures. For instance, the rule requires

disclosure of the highest fee payablefor bill payment features. Some cardsoffer free bill payment but charge foremergencies. The disclosure rules willrequire that the charge for emergencybill payment be made visible, whichmay deter consumers from using thefeature, even for non-emergencypayments. That prospect could leadcard issuers to stop offering theemergency bill payment feature, oreven bill payment features at all.

CFPB Hinders ConsumerAccess to Short-Term CreditEveryone who has been in constrainedfinancial circumstances knows thevalue of quick access to cash. Itdemonstrates financial responsibilityto pay a bill on time even if one hasto borrow to do so. Many of theunderbanked or other people inconstrained circumstances have lowcredit ratings and may not have acredit card, so they are forced to lookfor short-term loan financing likepayday loans or vehicle title loans. Yetthe CFPB is looking to kill off theseindustries on the basis that they canharm consumers. Its draft rule onsmall-dollar loans will effectively banloans that do not meet stringent “abilityto repay” criteria. And yet most peoplewho meet such criteria would probablybe able to get a credit card or otherlower cost loan. The people who willsuffer most from the rule are the peoplewho need access to such loans the most.

Everyone whohas been inconstrainedfinancialcircumstancesknows thevalue of quickaccess to cash.

By seekingto protect allconsumers fromproducts thatare risky to afew, the CFPBhas reducedconsumerwelfare on net.


Moreover, the Bureau’s research thatidentifies harm from small dollar loans(for instance, to a small number ofpeople who get into a “cycle of debt”and default) is at odds with mostpublished academic research on thesubject. The literature on the effects ofpayday and other small-dollar loanssuggests that there are no harmfulwelfare effects on net, and that thereare possibly beneficial effects overall.47

If you cannot get a short-term loanand fail to pay a bill, the consequencescan be devastating. For instance, failureto pay a utility bill could result inservice being cut off, with the cost ofreinstatement far more expensive inboth inconvenience and dollars thanthe cost of a payday loan—yet theCFPB thinks it is protecting consumersby effectively banning them, despitethe lack of compelling evidence tosupport such action.

Credit unions have objected to the rulebecause it will make it more difficultfor them to offer small-dollar loanproducts, some of which are intendedto help people pay off payday loansand escape from the rare cases of debtcycle the Bureau uses to justify its rule.By seeking to protect all consumersfrom products that are risky to a few,the CFPB has reduced consumerwelfare on net.

CFPB Transfers Wealth fromConsumers to LawyersTheArbitration Rule is another example

of the Bureau’s failure to properlyanalyze costs and benefits. The ruleostensibly seeks to preserve consumers’right to court action by banningmandatory arbitration clauses infinancial contracts, thereby encouragingthe use of class action lawsuits. Theresult is a net cost imposed onAmerica’s consumers and a windfallfor trial lawyers.

Arbitration has long been a featureof the financial system. Throughouthistory, customers, vendors and otherparties seeking to make agreementshave bound themselves to decisionsfrom private arbitration services.George Washington even insertedan arbitration clause into his will.48

Congress recognized the vital rolearbitration plays in the FederalArbitration Act in 1925.49 Yet theCFPB justified banning arbitration onthe basis of a study that found that, inthe event of a contractual dispute, theaverage consumer victor at arbitrationwas awarded around $5,000, while theaverage victor as part of a class actionsettlement received around $32 (andpossibly much less, depending on howone looks at the data). Trial lawyers,on the other hand, received on average$1 million per class action settlement.50

Consumers going to arbitration oftenhad all their costs paid for by thefinance company.

The CFPB simply ignored the data ithad collected. Instead, it justified therule by stating that the number of


consumer victories at arbitration wassmall by comparison with those forclass action members and that theclass-action settlements represented avictory for a much larger number ofconsumers. It also suggested that theability to join a class action representeda legal right Americans should notlose when they sign a contract.

Worse, the CFPB simply glossed overseveral relevant points. It waved awaydiscussion of the arbitration clauses ofthe Federal Arbitration Act.51 It failedto examine disputes that do not makeit to arbitration or legal proceedings. Italso failed to address properly the factthat class actions take much longerthan arbitration to reach resolution.52

Moreover, the CFPB’s proposal to banarbitration clauses is by no means theleast onerous way of preserving anyright to class action, if that is the trueintent of the rule. That could beachieved by allowing an opt-out fromarbitration at contract signing foranyone valuing the right.53

Accounting for the shift in procedurerequired by the rule will raise costs forfinancial firms, and by extension raisecosts on middle class consumers, someof whom will no longer be able toafford some financial services as aresult. Forced to use the court systemand trial lawyers, low- and middle-income consumers will also sufferdelays in having their problemsaddressed. A class action takes onaverage three years to come to a

settlement while arbitration takesjust under seven months.54 Theseconsiderations should have factored intoa proper cost-benefit analysis of therule, which the CFPB did not perform.

CFPB Rules Harm Main StreetBanks and ConsumersThe CFPB’s onerous regulations havesignificantly added to the regulatoryburden on regional and local banks andcredit unions. The result has been lesslending from these institutions and inmany cases bank mergers in order toafford the cost of compliance.

Community banks extend the possibilityof credit through familiar associationsand trust. Many are located in ruraland underbanked areas. However,community bankers have testified thatthey have had to stop offering mortgagesto people they know well because theycannot make the individual judgmentsthey once made about creditworthinessdue to the Bureau’s mortgage rules. AsJim Purcell, Chairman of the TexasBankers’Association and the StateNational Bank of Big Spring, told theHouse Financial Services Committee:

The problem for us, and I am suremany others, is that our borrowersgenerally sought relatively smallmortgages for their propertieswhich meant that the loan’s costsand fees had to be spread across asmaller principal balance. Eventhough we did not charge any

Communitybankers havetestified that theyhave had to stopoffering mortgagesto people theyknow well becausethey cannotmake individualjudgments aboutcreditworthinessdue to theBureau’smortgage rules.


application fees, origination fees,or any other type of fee, thesewere five-year balloon noteswhich typically meant they wouldfall into the disfavored “high-cost”definition. In addition, we raninto obstacles arising from theregulation’s definition ofmaximum debt-to-income ratiosfor borrowers. The end result, atleast for us, was that due to theincreased regulatory burden andpotential liability, State NationalBank of Big Spring ceasedmaking what we always deemedvery good and certainly very fairmortgage loans for the good ofboth our customers and thebroader community.55

Noting that the CFPB’s website saidthat its purpose was to make sure“banks … treat you fairly,” Purcellasked: “[H]ow is it ‘fairer’ to force ourcustomers to go elsewhere for their realestate loans as a consequence of thefact that our mortgage platform did notfit the Dodd-Frank/CFPB profile of a‘Qualified Mortgage?’”56

Furthermore, the mortgage rules beingimplemented are so complex that theCFPB can be credibly accused ofregulating by enforcement; regulatedentities have to wait to see the outcomeof an enforcement action beforeknowing what is allowed.

One example is the TILA-RESPAIntegrated Disclosure rule, a complicated

rule related to mortgage disclosurespursuant to both the Truth in LendingAct (TILA) and the Real EstateSettlement Procedures Act (RESPA).57

The rule is 1,888 pages long, yet stillvague in places, and, as HousingWireEditor Sarah Wheeler noted, might“actually cause the consumer to have awrong understanding of some of theircosts (especially in title).”58 This putscompanies attempting to interpret andimplement the rule in a bind, as theywill be subject to enforcement if theyfail to implement it, but also if theyimplement it in a way the CFPB doesnot like. Wheeler asks:

Busy with that implementation,companies are also supposed tosomehow have the manpower andbrain trust to track and understanda pattern of enforcements thatmay or may not have anything todo with their operations?59

The result of too much regulation isa chilling atmosphere for financialservices innovation. With rules thatreach almost 2,000 pages in length,how the CFPB will enforce them onlybecomes apparent when enforcementorders are issued. This also representsan end run around the statutoryrulemaking process.

There are many dangers associatedwith such regulation, including the lackof precise definitions of prohibited andallowed activities and the lack ofrulemaking safeguards Congress

With rules thatreach almost2,000 pages inlength, how theCFPB willenforce themonly becomesapparent whenenforcementorders areissued.


required through the AdministrativeProcedureAct, the Paperwork ReductionAct, and other rules about rules.

The CFPB’s actions have also decimatedsmall and community banks. Manysmall banks have no in-house counsel toadvise on the effects of such regulationand have had to merge with other smallbanks to reach the economies ofscale necessary to employ effectivecompliance teams. More mergers meanless competition in the long run, andfewer financial options for all.Demanding rules that govern virtuallyevery financial transaction haveespecially harmed community banks thatoffered loans based on their personalassessment of creditworthiness throughknowledge of the customer and othertraditional means of credit assessment.

Small banks facing these new pressuresfrom CFPB Rules have three options:

1) Increase their compliancedepartments and pass the costson to their customers.

2) Close.3) Merge with other banks to

be able to afford a largecompliance department.

Two thousand community banks andcredit unions have closed or mergedsince 2010, according to a March 2015Harvard Kennedy School study. Thestudy found that the rate of decline incommunity banks as a proportion ofthe U.S. banking system has doubled

since 2010, and that “particularlytroubling is community banks’ decliningmarket share in several key lendingmarkets, their decline in smallbusiness lending volume, and thedisproportionate losses being realizedby particularly small communitybanks.”60

Once again, the Bureau took actionsupposedly to protect consumers butended up harming them, without aclear analysis of the costs and benefitsof its actions, causing poor andunderbanked rural consumers to sufferthe most.

ConclusionThe CFPB is too problematic to fix byrelying on better discretion from itsdirector and other personnel. Itsproblems are so fundamental that itshould probably be abolished. Evenif it were brought under properconstitutional oversight, its one-size-fits-all approach is deeply at odds withthe needs and aspirations of millions ofindividual American consumers.

Current court cases, such as thePHH case currently being reheard,could provide some relief to theconstitutional problems by, for example,reaffirming the previous decision thatthe director should be answerable tothe president, although that wouldleave outstanding the constitutionalobjections in relation to the role ofCongress and the courts.

The CFPB’sone-size-fits-allapproach isdeeply at oddswith the needsand aspirationsof millions ofindividualAmericanconsumers.


One legislative solution would be torecognize the inherent differencebetween consumer product protectionand financial protection and abolish theagency, transferring consumer protectionduties back to the banking supervisorsand the Federal Trade Commission.

If Congress is unwilling to take thisstep, the CFPB at least could bebrought back within constitutionalnorms and made subject to adequatesupervision by the president, Congress,

and the judicial branch, while beingrequired to submit adequatejustification for its rules to the Officeof Management and Budget and toCongress for higher cost rules. Thisshould at least assert some disciplineover the agency.61

The CFPB represents a drastic changeto the way Americans are governed.The remedy for its abuses should beequally drastic.


NOTES1 The agency can be seen as the brainchild of then Harvard Professor, now Senator Elizabeth Warren (D-Mass.), who was

nominated to be its first director, although she was never confirmed by the Senate. In a 2007 journal article entitled, “Unsafeat Any Rate” (a direct allusion to Ralph Nader’s book, Unsafe at Any Speed), she proposed a “Financial Product SafetyCommission.” Warren proposed a commission structure, which has internal checks and balances and would pass constitutionalmuster. Elizabeth Warren, “Unsafe at Any Rate,” Democracy: A Journal of Ideas, Vol. 5 (Summer 2007),http://democracyjournal.org/magazine/5/unsafe-at-any-rate/.

2 Stefanie Haeffele and Todd Zywicki, “Loans are not Toasters: The Problems with a Consumer Financial Protection Agency,”Mercatus on Policy No.60, Mercatus Center, October 2009,https://ppe.mercatus.org/publication/loans-are-not-toasters-problems-consumer-financial-protection-agency.

3 Consumer Financial Protection Bureau, “The CFPB strategic plan, budget, and performance plan and report,” May 2017,http://files.consumerfinance.gov/f/documents/201705_cfpb_report_strategic-plan-budget-and-performance-plan_FY2017.pdf.

4 Dodd-Frank sets a cap at a certain percentage of the Federal Reserve’s operating funds, calculated by a complicated formula.For a layman’s guide, see Suzy Khimm, “Why the CFPB’s funding is guaranteed,” Washington Post, February 15, 2012,https://www.washingtonpost.com/blogs/wonkblog/post/why-the-cfpbs-funding-is-guaranteed/2012/02/15/gIQA1pAQGR_blog.html?utm_term=.9cfc6d0d6e68.

5 House Committee on Financial Services, “Why is a Washington Agency Spending $145 Million on Renovations for a BuildingIt Rents—and is Worth Only $154 Million?” news release, January 28, 2014,https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=367960.

6 As CEI fellow John Berlau noted: “The cost of renovating ‘Cordray Tower’ has already ballooned to $483 per square foot, morethan three times the cost of a typical luxury renovation in D.C., which runs at a rate of $150 per square foot. This figure … alsoexceeds the comparative costs of building Trump Tower, at $334 per square foot.” John Berlau, “‘Cordray Tower’ and otherReasons for Trump to Fire CFPB Director Cordray,” Forbes.com, February 28, 2017,https://www.forbes.com/sites/johnberlau/2017/02/28/cordray-tower-and-other-reasons-for-trump-to-fire-cfpb-director-cordray/#42cc824e5c28.

7 House Financial Services Committee video, March 17, 2015, https://www.youtube.com/watch?v=5IxSfJ638cs.8 12 U.S. Code § 5491 (c3) (3) https://www.law.cornell.edu/uscode/text/12/5491.9 PHH Corp v. CFPB, 839 F.3d 1 (D.C. Cir. 2016).10 Ibid.11 12 U.S. Code § 5512 (B) (4) (b), https://www.law.cornell.edu/uscode/text/12/5512.12 For an explanation of these doctrines, see Elizabeth Slattery, “Who Will Regulate the Regulators? Administrative Agencies, the

Separation of Powers, and Chevron Deference,” Legal Memorandum No.153, Heritage Foundation, May 7 2015,http://thf_media.s3.amazonaws.com/2015/pdf/LM153.pdf.

13 CFPB, “CFPB Takes Action Against PHH Corporation for Mortgage Insurance Kickbacks,” January 29 2014,https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-phh-corporation-for-mortgage-insurance-kickbacks/

14 U.S. Department of the Treasury, “Financial Stability Oversight Council: Who is on the Council?” May 10 2017,https://www.treasury.gov/initiatives/fsoc/about/council/Pages/default.aspx

15 78 FR 11483, https://www.federalregister.gov/documents/2013/02/15/2013-01737/disclosure-of-records-and-information16 “Amendments Relating to Disclosure of Records and Information,” 81 FR 58309,

https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendments-relating-disclosure-records-and-information/.

17 American Civil Liberties Union comments on Docket No. CFPB–2016–0039; RIN 3170–AA63,https://www.regulations.gov/document?D=CFPB-2016-0039-0024.

18 Ibid.19 For further discussion on this point, see James Q. Wilson, “The Rise of the Bureaucratic State,” The Public Interest, Vol. 41

(Fall 1975), https://www.nationalaffairs.com/public_interest/detail/the-rise-of-the-bureaucratic-state.20 Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, 183 F.Supp.3d 79

(D.D.C. 2016) https://www.consumerfinancemonitor.com/wp-content/uploads/sites/14/2016/04/ACICS-Decision.pdf.21 Ibid.22 The law states, “SALE, SERVICING, AND LEASING OF MOTOR VEHICLES EXCLUDED.—Except as permitted in subsec-

tion (b), the Bureau may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority toorder assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, theleasing and servicing of motor vehicles, or both.” Dodd FrankAct Section 1029 SEC. 1029. EXCLUSION FORAUTO DEALERS,http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_Section_1029.html.

23 CFPB Bulletin 2013-02, “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act,” March 21, 2013,https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474838552.


24 Arthur P. Baines and Dr. Marsha J. Courchane, “Fair Lending: Implications for the Indirect Auto Finance Market,”Charles River Associates, November 19, 2014,https://www.afsaonline.org/Portals/0/Federal/Issue Briefs/Fair Lending in the Indirect Auto Lending Markey Summary.pdf

25 Bob Sullivan, “Some White Borrowers May Get Refunds in a Racial Discrimination Settlement. Here’s Why,” Credit.com,February 1 2016, http://blog.credit.com/2016/02/white-borrowers-get-refunds-in-discrimination-settlement-135965/.

26 The Editors, “CFPB Admits Using Bad Math to Restructure $900 Bil Auto Finance Industry,” Investors Business Daily,October 1, 2015, http://www.investors.com/politics/editorials/cfpb-admits-using-bad-math-to-restructure-auto-finance-industry/.

27 Government Accountability Office, “Consumer Financial Protection Bureau: Some Privacy and Security Procedures for DataCollections Should Continue Being Enhanced” GAO-14-758, September 22, 2014, https://www.gao.gov/products/GAO-14-758.

28 Ibid.29 Ibid.30 Consumer Financial Protection Bureau, “Request for Proposals: RFP # CFP-12-R-00001, Collection, Transmission, Validation,

Aggregation, Reporting, Storage, and Analysis of Credit Card Data (CCD Services),” January 27, 2012.31 Letter from Thomas Strattman to Rep. Scott Garrett, January 23, 2014,

https://www.mercatus.org/system/files/StratmannCFPBStatisticMethods.pdf.32 PHH v. CFPB.33 12 U.S. Code § 5512 (b) (2) (a) (i) https://www.law.cornell.edu/uscode/text/12/5512.34 Consumer Financial Protection Bureau, “Notice of Proposed Rulemaking on Payday, Vehicle Title, and Certain High-Cost

Installment Loans,” June 2 2016,https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/notice-proposed-rulemaking-payday-vehicle-title-and-certain-high-cost-installment-loans/.

35 Zixta Q. Martinez, “Six Years Serving You,” Consumer Financial Protection Bureau Blog, July 21 2017,https://www.consumerfinance.gov/about-us/blog/six-years-serving-you/.

36 Mary Sanchez, “Wells Fargo schemes prove the value of vigorous bank regulation,” Chicago Tribune, September 19, 2016,http://www.chicagotribune.com/news/opinion/commentary/ct-wells-fargo-bank-regulation-20160919-story.html.

37 Michael Corkery, “Wells Fargo Fined $185 Million for Fraudulently Opening Accounts,” New York Times, September 8 2016,https://www.nytimes.com/2016/09/09/business/dealbook/wells-fargo-fined-for-years-of-harm-to-customers.html.

38 E. Scott Reckard, “Wells Fargo’s pressure-cooker sales culture comes at a cost,” Los Angeles Times, December 21 2013,http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html.

39 Ronald L. Rubin, “The CFPB Supervision Problem,” National Review, June 23 2017,http://www.nationalreview.com/article/448905/cfpb-independence-hides-mismanagement-failure.

40 CFPB Rule, “PrepaidAccounts under the Electronic Fund Transfer Act (Regulation E) and the Truth In LendingAct (Regulation Z),”81 FR 83934, November 22 2016,https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/prepaid-accounts-under-electronic-fund-transfer-act-regulation-e-and-truth-lending-act-regulation-z/.

41 2015 FDIC National Survey of Unbanked and Underbanked Households, custom table,https://cei.org/sites/default/files/20170307_Used_prepaid_card_in_past_12_months_for_Nation__2015_by_Selected_Household_Characteristics-1.pdf.

42 TD Bank, “New Survey Signals Rising Popularity of Prepaid Cards, Led By Millennials,” news release, April 6 2015https://mediaroom.tdbank.com/2015-04-06-New-Survey-Signals-Rising-Popularity-of-Prepaid-Cards-Led-By-Millennials.Pew Charitable Trusts, “Banking on Prepaid: Survey of motivations and views of prepaid card users,” June 30 215,http://www.pewtrusts.org/en/research-and-analysis/reports/2015/06/banking-on-prepaid.

43 CFPB Rule.44 Meghan Malloy, “Congressional Disapproval of CFPB’s Prepaid Card Rules: What You Should Know,” American Action Forum,

March 7 2017, https://www.americanactionforum.org/insight/congressional-disapproval-cfpbs-prepaid-card-rules-know/.45 Pew Charitable Trusts, op. cit.46 Under the previous interpretation, overdraft protection, where a charge that sent the account overdrawn would be paid by the

bank and incur a “courtesy fee” or the like, was distinct from open-ended overdraft lines of credit, which required a creditagreement and compliance with the Truth in Lending Act.

47 Hilary Miller, “Ending Payday Lending Would Harm Consumers,” OnPoint No. 220, Competitive Enterprise Institute,October 5, 2016, https://cei.org/content/ending-payday-lending-would-harm-consumers.

48 The Will of George Washington, 1799,https://www.trans-lex.org/800900/_/arbitration-clause-in-the-will-of-george-washington-1799/.

49 U.S. Code: Title 9 – Arbitration, https://www.law.cornell.edu/uscode/text/9.


50 Consumer Financial Protection Bureau, “Arbitration Study,” March 2015,http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf. Ted Frank, “Class Actions,Arbitration, and Consumer Rights: Why Concepcion is a Pro-Consumer Decision,” Manhattan Institute, February 19 2013,https://www.manhattan-institute.org/html/class-actions-arbitration-and-consumer-rights-why-concepcion-pro-consumer-decision-5896.html.

51 CFPB, “Arbitration Study,” Section 1.1.52 Jason Scott Johnston and Todd Zywicki, “The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and

Critique,” Mercatus Working Paper, Mercatus Center, August 2015,https://www.mercatus.org/system/files/Johnston-CFPB-Arbitration.pdf.

53 Competitive Enterprise Institute, “Comments to the CFPB on Barring Arbitration Agreements,” August 22 2016,https://cei.org/content/comments-cfpb-barring-arbitration-agreements

54 Frank.55 Testimony of Jim R. Purcell, Chairman, State National Bank of Big Spring Big Spring, Texas and Chairman, Texas Bankers

Association before the Committee on Financial Services, U.S. House of Representatives, July 12, 2016,http://texasbankers.informz.net/texasbankers/data/images/Testimony_of_Jim_Purcell.pdf. The State National Bank of Big Springis a participant in CEI’s lawsuit against the constitutionality of the CFPB, State National Bank of Big Spring et al. v CFPB.Docket number: No. 13-5247, https://cei.org/litigation/challenging-dodd-frank-state-national-bank-big-spring-v-cfpb.

56 Ibid.57 According to the CFPB itself, the rule relates to “certain disclosures that consumers receive in connection with applying for

and closing on a mortgage loan under the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act(Regulation X).” The rule requires increased disclosure for “most closed-end consumer credit transactions secured by realproperty,” which will be good news for those who enjoy sitting for hours listening to lawyers explain each and every form theysign when closing on a house.

58 Sarah Wheeler, “The CFPB’s enforcement approach is smothering innovation in the mortgage industry,”Housingwire, March 11 2016,https://www.housingwire.com/blogs/1-rewired/post/36501-the-cfpbs-enforcement-approach-is-smothering-innovation-in-the-mortgage-industry.

59 Ibid.60 Marshall Lux and Robert Greene, “The State and Fate of Community Banking,” M-RCBG Associate Working Paper No. 37,

Harvard Kennedy School Mossavar-Rahmani Center for Business and Government, March 2015,https://www.hks.harvard.edu/centers/mrcbg/publications/awp/awp37.

61 Further discussion of what could be done to fix the problems with the CFPB can be found in the CEI policy brief,“Shrinking Government Bureaucracy: Rethinking the Consumer Financial Protection Bureau,” Web Memo No. 44,Competitive Enterprise Institute, August 16, 2017, https://cei.org/shrinkinggov/cfpb.



About the Author

Iain Murray is the Competitive Enterprise Institute’s Vice President for Strategy. For the past decade with theInstitute, he has concentrated on financial regulation, employment and immigration regulation, and free marketenvironmentalism.Murray has published several acclaimed books, including Stealing You Blind: HowGovernment Fat Cats Are GettingRich Off of You and The Really Inconvenient Truths: Seven Environmental Catastrophes Liberals Won’t Tell YouAbout—Because They Helped Cause Them. His op-eds have appeared in National Review, The Providence Journal,and FoxNews.com. He has appeared on Fox News, CNN Headline News, the BBC and Al-Jazeera, among otherbroadcast networks.In addition to his work at CEI, Murray is a visiting fellow at theAdam Smith Institute, a board member of the CherishFreedom Trust and American Friends of the Taxpayers Alliance, and an advisory board member of Economists forBritain and the Young Britons Foundation.Prior to coming to CEI in 2003, Murray was the Director of Research for the Statistical Assessment Service and anExecutive Officer at HM Department of Transport. He received his MBA from the University of London and hisMA from the University of Oxford.


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