We’ll stipulate the Consumer Financial Protection Bureau could be a force for good in theory, but corralling an agency of unelected bureaucrats running roughshod over its charge isn’t easy, and one reason acting director Mick Mulvaney is taking a minimalist approach to reform.
A piece in The Wall Street Journal argues in favor of the bureau, but it’s heavy on caveats. CFPB’s “successes” thus-far have largely relied on regulation-by-enforcement, which had stifled innovation, lending and competition. Little surprise, then, those it claims to help were hurt most—low and middle-income consumers.
Mulvaney “announced in a staff memorandum last month that the bureau will go in a different direction under his leadership, and he has already started rolling back some of its most harmful regulations,” the Journal notes.
Which is good. Overly invasive regulation only adds to market inefficiencies, the antithesis of its supposed purpose. It usually results in new and creative ways for large institutions to engage in the same—or worse—behavior, all while harming the end consumer.
It’s what Harvard Business Review refers to as the theory of Accountabalism, which is the belief, or delusion, that one more paragraph of disclosure, one more piece of paper or procedure in place will protect against poor human behavior.
As we’ve said time and again, regulators didn’t catch Madoff’s fraud (indeed, a strong case can be made that they enabled it), it was exposed by the market when the crime was no longer sustainable.
None of this is to make the anarchistic argument that regulation is unnecessary, it just requires a lighter touch (invisible hand?); the proverbial scalpel rather than hammer.
We hope for a successful course-correct. But given the CFPB’s founding, mission and personnel—which included a pocket of Elizabeth Warren-like resistors during the recent director drama who dubbed themselves Dumbledore’s Army (no joke)—the only solution might be to tear it down and try again.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
In light of Mulvany recent withdrawal the CFPB’s lawsuit against a group of payday lenders charging usurious interests rates, I found the tenor and content of this article extremely alarming. I hope readers are informed enough to recognize the danger of Mr. Sullivan’s opinion.
I thoroughly agree. I would start by doing away with the U-4 altogether – or make it a voluntary, opt-in only device. The U-4 essentially compels brokers and investment advisers into becoming self-reporting credit bureaus with none of the protections afforded by the Fair Credit Reporting Act. There are no statute of limitations for starters. Any prospective employer or investor can peek at a U-4 without any permission whatsoever. There is no tracking mechanism – unlike with credit reports – a full listing of all inquiries is displayed. And how does a tax lien or accusation by a customer – or government regulator – bear on one’s ability to manage the ups and downs of the financial markets for clients? Show us the data. But they can’t. There is none. It’s a solution looking for a problem. Just like this article refers to. “Just one more disclosure, one more piece of paper…”