OPINION:
Ironically, the politicians most likely to claim “democracy is in crisis” are those who established and supported a powerful federal agency specifically designed to limit the ability of Congress and the American people to hold it accountable.
The Consumer Financial Protection Bureau was created to circumvent the democratic process. CFPB advocates argue that the agency should be wholly independent and insulated from the accountability of Congress, the president and even the courts. Its funding came from the secret Federal Reserve, not Congress.
The CFPB director is appointed for a five-year term and can be replaced only in an emergency. Those affected by the CFPB’s decisions and regulations often feel trapped in a Kafkaesque world with little recourse. Its entire structure is designed to skirt constitutional scrutiny and norms. Thankfully, federal courts have not bowed and have repeatedly issued decisions demonstrating that the agency is not outside democratic norms.
Despite efforts to bring the agency back under the umbrella of congressional oversight, the CFPB continues to issue dictates, rules and regulations as if nothing can be done about them. The latest regulation pumped out of the bureau has caught the attention of several senators who are demanding the rescission of the proposed so-called late fee rules.
Credit card companies, especially in economic downtimes, find themselves holding the bag when consumers cannot repay the money lent to them. The personal finance industry has adopted several incentives to ensure consumers responsibly budget their funds.
A fee is added when someone doesn’t balance their checkbook and writes a check that bounces. When a consumer doesn’t pay their bills on time, fees are also added. This shouldn’t be shocking. Bouncing checks or failing to pay bills on time costs financial institutions billions of dollars which these fees help to offset. The alternative would be to raise prices for everyone.
But to the bureaucrats at the CFPB, many of whom have never held a job in the private sector, these fees have been termed “junk fees” whose only purpose is to pad the pockets of billion-dollar companies. The CFPB proposed capping the fees at an arbitrary $8 and reducing the cap for the late fee dollar amount from 100% to 25% of the required minimum payment.
The CFPB rule creates perverse incentives that encourage, rather than discourage, someone from paying their bills on time. As one bank executive said in response to the fee cap: “I think about the $8, and if it cost me $8 every time I got a speeding ticket, I would pretty much speed all the time, wouldn’t make a bit of difference to me on the $8.”
If you reduce disincentives to delinquency, you will get more delinquency. It’s that simple.
Sen. Tim Scott, South Carolina Republican, and his colleagues dispatched a letter to CFPB Director Rohit Chopra requesting that the rule be rescinded. They argue that these new rules will not only harm consumers who pay their bills on time, but they will also ultimately raise the cost of lending, limiting the ability of those on the lower rung of the economic ladder to get needed credit.
The letter concludes: “In light of the CFPB’s recent efforts to attack financial institutions and businesses for charging reasonable fees that promote financial responsibility and allow broader credit access, this will compound the financial pain many Americans are already experiencing. Accordingly, we request that you promptly rescind this misguided proposed rule and stop unfairly disparaging commonsense fees that allow businesses to offer credit, bank accounts, and financial products to individuals with a limited credit history before these efforts cause unnecessary harm to American consumers.”
The latest dictate from the CFPB will harm consumers. Banks have already said they will reduce or stop access to credit for people with lower incomes or inconsistent payments. It will also hurt smaller banks and lead to further industry power concentration.
It is critical that Congress and the courts establish their roles in our constitutional system. Those who care about “our democracy” should be the first to demand accountability for the CFPB. Placing a government regulatory body outside the reach of congressional oversight and judicial review is not democracy but authoritarianism.
• Daniel J. Mitchell is the co-founder and president of the Center for Freedom and Prosperity.
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