COLUMN: Unaccountable Bureaucrats Hurt Community Based Financing

March 21, 2016
Weekly Column and Op-Ed

Think for a moment about all the financial products you use on a regular basis: credit cards, a mortgage, an auto loan, perhaps short-term consumer credit. Now imagine a single unelected bureaucrat dictating the terms of all of those products. Imagine if that bureaucrat could cancel any financial agreement they didn't like, for any reason. If one bureaucrat had that much power, then banks and mortgage institutions would write, and rewrite, the terms of their products to that bureaucrat’s preferences, not for the best interest of the consumer. Financial products would be hard to predict, and more expensive than they should be, particularly for small, community-based financial institutions and their customers.

Unfortunately, under the Dodd-Frank financial law, this is exactly the current situation. The Consumer Financial Protection Bureau (CFPB), headed by a single director, with no budget accountability to Congress, has total control over the terms of every consumer financial product in the United States. The director is appointed by the President to five-year terms - which means an incoming President cannot appoint a new one.

The CFPB was instituted under Dodd-Frank in order to regulate financial institutions and the products they offer. While some commonsense regulations can be necessary, especially when there is abuse, the consequences of new CFPB rules have had an outsized impact on community-based institutions, including small banks and credit unions. The sweeping authority and lack of congressional oversight of this regulatory agency is not only alarming, but the unintended consequences of CFPB’s regulations demand examination and reform.

Community-based institutions are important sources of credit—especially in rural and agricultural areas. CFPB’s financial regulations can run hundreds or even thousands of pages. Compliance costs associated with these new regulatory requirements may be relatively minimal for large financial institutions, but they create heavy burdens on small institutions that are passed onto their customers. According to a recent Harvard study, “inappropriately designed regulation” and “inadequate regulatory coordination” regarding community banks have resulted in the “withering” of this important source of credit. The federal government should not be regulating small financial institutions out of existence.

I recently joined more than 300 of my colleagues on both sides of the aisle to reverse this damaging trend. My colleagues and I expressed our concern that the CFPB’s one-size-fits-all rulemaking fails to distinguish between large financial institutions and small community lenders. We are urging CFPB to consider the financial burdens of its regulations and to use its existing authority under Dodd-Frank to exempt credit unions and community banks from its rulemakings.

I have also cosponsored legislation to eliminate this unaccountable agency created by Dodd-Frank. I also work with my colleagues in Congress to demand changes that address immediate problems created by the CFPB and their harmful impacts. The impact of continuing the status quo could be fewer credit unions and community banks, with less choice for customers. In the end, consumers deserve protections that do not limit their choice of credit providers or give large financial institutions unfair advantages over small, community-based lenders.