Here’s what we know: cronyism exists when government is able to pick winners and losers in a marketplace. All public corruption starts there—whether it’s someone trying to get the government to endorse a particular technology, or to award a particular contract, or, in many cases these days, to use the power of regulation to drive competitors out of a marketplace.
It's worse when an agency is fundamentally unaccountable—when it resists legislative oversight, or those who are supposed to be in charge of an agency’s purse strings is rendered essentially unable to do so. Add ideologues to the mix, and it is a sure-fire recipe for a public policy disaster.
Such is the case with the Consumer Financial Protection Bureau. The CFPB, whose mission was supposed to, literally, protect consumers and their finances, was (predictably) hijacked by ideologues almost immediately upon its creation. The end result has been a seemingly-endless string of public policy pronouncements that have left consumers less protected and far-worse-off than before the agency was created—especially those who have the riskiest credit and the least access to traditional banking products.
According to the FDIC, thirty four million Americans are what are known as “unbanked” or “underbanked”—they have little access to traditional financial services. These are the people who were harmed by the CFPB when their regulatory initiatives to hamstring short-term/high-risk (so-called “payday” lenders) also caught urban “check cashing” businesses in their web. https://www.cfpbmonitor.com/2014/04/21/house-committee-on-financial-services-concerned-with-decreased-consumer-choice/Rep. Gregory Meeks (D-NY) warned at an April 2014 congressional hearing as to how the CFPB’s policies were harming the unbanked and underbanked individuals within his district. Hundreds of individuals have testified at CFPB field hearings around the country as to how a wide array of innovative financial services have helped them, and how CFPB’s proposals would deny them access to these essential products.
But it doesn’t end with payday lending, check cashing, or auto loans (a subject dealt with in congressional legislation this week)—and it’s not entirely ideological, either. More accurately, it is ideology with a personal bent, to the benefit of a select few. The House, in a report on the CFPB, concluded that the agency operates with a “personal animus” against the entities it regulates. And this week, Politico is reporting on the CFPB’s “cozy” relationship with a non-profit called “The Center for Responsible Lending”, and their “SelfHelp Credit Union”, and how this relationship allowed CRL tremendous involvement in crafting rules that would have a major impact on the credit union’s competitors.
Now the CFPB is proposing to go after “prepaid” credit and debit cards—cards used by millions of Americans who simply do not have access to traditional credit cards (an increasing number since new rules have made it harder for working Americans to get credit—and a number that is expected to double by 2017). The CFPB proposal would subject issuers to severe limitations in how these cards get issued, and massively burdensome documentation requirements, essentially making the issuance of such cards too problematic for those innovators who offer them to do so in the future.
Consumers need protection from fraud, and they need protection from those who would prey on them and take advantage of their misfortune.
But those consumers with the most marginal of credits need access to the widest variety of choices in terms of financial services products. Consumer choice, not regulation, is the best avenue for serving these at-risk and underserved communities.
Nobody is helped when government makes those choices for them. It’s even worse when government is cozy with those who want to limit those choices for their own benefit.