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Who Really Needs the CFPB? Not Consumers

Has the Consumer Financial Protection Bureau, with over 500 employees and growing like cancer, actually protected any consumers yet? Well, next best thing. It garners headlines nearly daily in lobbying to gain full powers by getting Cordray confirmed.  Dodd-Frank says the CFPB must have a confirmed director to fire from all barrels.

As Sen. Shelby pointed out, the CFPB (under Sec. 1013(d) of Dodd-Frank) can already pay boundless sums to political allies, the self-described consumerist organizations, to multiply their extensive lobbying, their "educational" efforts.

Why should we simply assume that any of these organizations is better than their former ally and icon, Acorn. You remember Acorn? It received millions in government money. Its affiliates' "educational" antics included picketing the homes of lending managers. After 40 years, Acorn finally cratered when evidence of misconduct could no longer be concealed and Obama signed the Acorn Defunding Act in 2010.

There is a natural alliance between such organizations and the CFPB. Both lobby for Cordray's confirmation in order to expand the CFPB's powers. Both want to restrict consumers' choices, as does Sen. Menendez, who has again proposed a bill to limit fees on prepaid cards.

Recently, seven consumerist organizations wrote Raj Date a joint letter urging more restrictions on prepaid cards, already devalued by Durbin.

Recall the broader context: fundamental, deep-seated defects in regulation and enforcement permitted disastrous taxpayer losses on AIG; the fulminating production of fraudulent mortgages and mortgage securities; and the increasing concentration of banking in huge institutions exceptionally prone to failure.

Consumers, especially those paying taxes, were severely damaged by all this and by the resulting recession.

But the CFPB won't do anything to prevent a repetition of any of this.

In their letter to Date, the non-profit lobbyists call for more CFPB regulation of prepaid card terms. This three-page letter, replete with footnotes, cites no evidence that over 5 million prepaid cards have hurt even one consumer.

Shouldn't the CFPB deal first with $38 billion in annual overdraft fees on checking accounts — including hundreds of millions for overdrafts that never even occurred? Legislatively mandated issuance of hundreds of new regulations is also way behind schedule.

Chairman Bernanke pledged in 2006 to set all rules "in a manner that provides the greatest benefit at the lowest cost to society as a whole." The Fed may try to; the CFPB won't.

Executive Order 13563 (Obama, 2011) provides that every regulation requires "a reasoned determination that its benefits justify its costs." The DC Appeals Court ruled that the Administrative Procedure Act requires every regulator to demonstrate "a rational connection between the facts found and the choices made." This is the court into which the CFPB will be hailed after the coronation of Cordray, when it switches from public relations to Warren's aberrant vision of "consumer protection."

The consumerists' letter shows no respect for cost-benefit requirements. The consumerists demand specific additional regulations (some of which the Fed has declined for years to promulgate) as a matter of manifest destiny or natural law, regardless of cost.

They do this without even claiming that their proposal will yield net benefit to society. They would allow a consumer who had opted for electronic statements to come back 10 or 50 years later and reverse a charge — if he were clever enough never to have "accessed" the relevant line in his electronic statement.  (Shouldn't we likewise "protect" less technological consumers, who throw away their bills unopened?)

Evidently the CFPB's fellow travelers confidently expect the agency to protect consumers from their own folly without regard to the costs of this protection, either to consumers or to anyone else. Wasteful, absurd, counter productive. But, who's to say they're wrong — in expecting Cordray and Date to do their bidding?

Why not regulate prepaid cell phone terms rather than prepaid cards? Cell phone terms can be unduly onerous and confusing. There are far more cell phones than cards, and they cost much more.

Money is money, and consumer protection is consumer protection. But the cell phones weren't "financial" enough for Dodd and Frank — who pandered with laser focus to voter resentment over bank bailouts that can ultimately cost consumers nothing.

The CFPB is warped and misdirected as well as unneeded. Confirmation of a director to broaden its powers is not in the public interest. Instead, appropriate more money for the SEC and CFTC, which are direly under funded and hence short handed. Protect consumers against another MF Global as well as from repeated issuance of tens and hundreds of billions in fraudulent securities.

Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian. He can be reached at


(2) Comments



Comments (2)
[From Rob Blackwell, Washington Bureau Chief, American Banker] I sometimes wonder if Mr. Kahr witnessed the same financial crisis I did. "The CFPB is warped and misdirected as well as unneeded."

But it is, in fact, none of these things.

It's not unneeded because the banking regulators, left to their own devices, will always focus first and foremost on safety and soundness issues, not consumer protection issues. For evidence, please look at banking regulation during the past 10 years.

As for CFPB being "warped and misdirected," it's hard to see how. So far the agency has focused on better disclosures. It isn't exactly throwing bombs at anyone.

Lastly, Kahr claims that the CFPB won't care about cost-benefit when it writes rules and regulations. But he has no evidence for this other than a letter from consumer groups, which he seems to assume the CFPB will adopt wholesale.

I don't know what CFPB will do yet, and neither does Kahr. The fact that he wants to condemn the agency ahead of time, however, suggests he's hardly an unbiased observer.
Posted by rblackwe | Tuesday, January 03 2012 at 12:46PM ET
I thought I'd heard Mr. Kahr's name when I read this piece, so I did a few minutes of Googling and found this, from when Kahr was at Providian: "

"Making people pay for access to credit is a lucrative business wherever it is practiced," he (Kahr) wrote in a March 1999 memo to Executive Vice President David Alvarez. "Is any bit of food too small to grab when you're starving and when there is nothing else in sight? The trick is charging a lot, repeatedly, for small doses of incremental credit."

This explains much about his attitude towards better disclosure about financial products.
Posted by Herr Wahr | Sunday, January 01 2012 at 5:41PM ET
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