Background: In response to the financial crisis of 2007-08 and the Great Recession, Congress misguidedly passed the Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank. One of the main provisions within Dodd-Frank is the creation of one of the most powerful and unaccountable agencies of the federal government named the Consumer Financial Protection Bureau (CFPB). The mission of CFPB is to protect consumers in the financial sector through imposing rules and regulations on various financial companies including banks, lending institutions, mortgage-servicing organizations, and others.
Restricts Choice and Access to Credit: While consumer protection is supposedly the main purpose of CFPB, its regulations do tremendous harm to consumers. Built on the premise that consumers are too ignorant to act on their own self-interest, CFPB rulemaking empowers borrowers to sue mortgage lenders for misjudging a borrower’s financial fitness. This requirement called “ability to repay” increases litigation and shrinks the availability of credit for potential home buyers. To help lenders avoid litigation, CFPB created qualified mortgages (QMs) that require a debt-to-income ratio of 43 percent. But this one-size-fit all approach limits choice and directly hurts first time home buyers and young adults with college debt looking to purchase a house.
Unaccountable: The CFPB is exempt from nearly every form of oversight traditionally applied to other governmental agencies. For instance, CFPB is overseen by a single director who serves a five-year term and is virtually impossible to remove from office. The bureau is exempt from following rules established by the Office of Management and Budget (OMB). While contained within the Federal Reserve System, the bureau is not subject to their management control. Furthermore, Congress has no ability to oversee the CFPB’s budget as they receive funding from the Federal Reserve System. The CFPB boasts an alarming staff of nearly 1,700 employees and direct funding of more than $600 million a year.
The lack of oversight at the CFPB creates deep uncertainty in the financial market. Instead of enforcing clearly promulgated laws laid out by Congress and other federal agencies, CFPB has the power to make up its own rules on the spot in an effort to prevent future violations to consumers. This intervention also shrinks the availability of credit for potential home buyers by destroying a healthy and fair marketplace for lenders to operate in.
Solution: Because the Consumer Financial Protection Bureau restricts choice and access to credit and fosters market uncertainty, Congress should repeal the statutory provisions that provide for the CFPB and reassign essential provisions to existing federal agencies subject to more oversight. Doing so will ensure an abundance of credit and financial products for potential home buyers and create a robust and stable real estate market.