This commentary is excerpted from testimony before the U.S. House Committee on Financial Services.
By Todd Zywicki
An animating premise of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was the belief that a primary source of financial instability was an inadequate consumer financial protection regime at the federal level.
Dodd-Frank sought to address those perceived deficiencies by creating the Bureau of Consumer Financial Protection (CFPB) and vesting that new super-bureaucracy wielding an unprecedented combination of vast, vaguely defined substantive powers with no democratic accountability.
At the outset, allow me to stress that I personally agreed with the proposal to combine the administration of federal consumer financial protection laws under one agency’s roof. The preexisting system was too complicated, too fragmented, and too incoherent.
That Dodd-Frank squandered this historic opportunity to modernize and reform consumer protection laws for the benefit of consumers was, therefore, particularly disappointing. In the five years since the law came into effect it has resulted in higher prices and reduced choice for consumers and has done little to increase consumer financial protection.
Yet while this sorry result for American consumers is tragic, it is hardly surprising. The failure of Dodd-Frank’s regulatory agenda to promote the interests of consumers was built in from the beginning.
The CFPB, for instance, is vested with extraordinarily broad charge to prevent “unfair, deceptive, and abusive” terms and practices. At the same time, this vast power is vested in an agency with an unprecedented lack of democratic accountability. Under the statute, the president can nominate the director, but once confirmed the director can be removed only “for cause.”
Furthermore, the CFPB is outside Congress’s appropriations power, and is authorized to spend hundreds of millions of taxpayer dollars every year with no accountability to the American people.
Given this extreme lack of democratic accountability, the CFPB has done what all bureaucracies tend to do: it has constantly expanded its power, promoted its own bureaucratic interests at the expense of the public, and trampled underfoot other public policies, such as consumer choice and financial innovation.
The impact on American families and the economy from the actions of this unaccountable super-regulator has been disastrous:
After five years, has Dodd-Frank made American families better off? No. Instead, the overall impact of Dodd-Frank has been to slow our economic recovery, raise prices, reduce choice and eliminate access to the financial mainstream for American families. And low-income Americans have been hit the hardest.
Todd Zywicki is a George Mason University Foundation Professor of Law and Executive Director of the Law and Economics Center, and a Senior Scholar at the Mercatus Center. Access his complete testimony at http://financialservices.house.gov/uploadedfiles/hhrg-114-ba00-wstate-tzywicki-20150709.pdf.
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