Perhaps the crowning achievement of the Dodd-Frank Act is the creation of the "Bureau of Consumer Financial Protection." Generally referred to as the CFPB, this new regulator of financial institutions has been praised as the ultimate consumer advocate — a knight in shining armor. In reference to the Bureau's role as consumer savior, Elizabeth Warren called her brainchild the "Cop on the Financial Protection Beat."
The astute reader will notice that the acronym CFPB does not correlate with the agency's statutory title. In fact, even the legislative text is inconsistent. No doubt the "b" word was intentionally played down. Bureaucrats in Washington likely felt uneasy about any negative connotation associated with the word Bureau. On the other hand, the phrase Consumer Financial Protection elicits a positive response. Therefore, in official materials, the Bureau is almost always referred to as the CFPB.
Well, I propose a new definition for the acronym CFPB: Choking Financial Professionals and Businesses.
While the Bureau may have consumers' best interests at heart, it is choking the financial sector. More regulation means increased compliance costs. Increased compliance costs will, inevitably, drive up prices and reduce services.
Predictably, Dodd-Frank and the Bureau are already choking the banking industry. No longer can the average consumer open a free checking account. Due to ever-increasing compliance requirements under Dodd-Frank, most banks elected to pass these costs along to the consumer by eliminating free checking.
Today, most accounts require a substantial direct deposit each month or impose a minimum balance requirement or else a maintenance fee is assessed. In fact, before these new regulations, the typical checking account with a monthly balance of less than $500 already cost banks more than that just to service the account. Now, that estimate may double and it is even worse for community banks. As a result of government intervention, free checking is essentially dead. Furthermore, due to looming regulatory changes, every bank ranging from $10 billion to $50 billion in assets is holding its breath, waiting for the Bureau to officially define "large bank." Without a doubt, these added compliance costs will be passed on to the consumer.
Already, the banks' new requirements have caused countless consumers to abandon financial institutions altogether and join the unbanked – those who rely on cash, money orders, wire transfers, and reloadable prepaid cards to cover monthly expenses. Unfortunately for this group, reloadable cards are the Bureau's next target.
Seizing an opportunity, enterprising companies have introduced universal prepaid debit cards as checking account alternatives. These cards, known in the industry as general purpose reloadable cards, can be reloaded and used anywhere the card brand – Visa or MasterCard for example – is accepted. Further, unlike most checking accounts, these cards rarely have a minimum balance requirement and usually only charge an activation fee or inactivity fee. On top of that, many general purpose reloadable cards include an ATM network, provide online account access, and accept direct deposit. Compared to the burdens of a traditional checking account, general purpose reloadable cards are a blessing.
Having met with some of the CFPB staff on two occassions, I came away both times with one common
reality -- the great majority of those I met with had impressive educational backgrounds and they were smart -- However nearly all have spent their whole careers in Goverment positions or academia. They do not have any real world business experience thus have never actually engaged a real customer in any financial related transaction. Reminds me that I once read an article by a Professor of Aeronautical Engineering that said a bubble bee theoretically can't fly - Yet he got stung by one!
The behemoth of fraud is what created this regulatory environment.