A few days ago, a newly released Rasmussen Reports poll found that 65 percent of Americans prefer a smaller federal government that offers fewer services and demands less in taxes. So, naturally, the federal government is set to launch a massive new bureaucracy today.
The Consumer Financial Protection Bureau was created as part of the 2,300-page financial regulation bill signed into law last year as a result of the collapse in the banking industry. It seeks to regulate all types of lending, especially those from non-banks that currently are loosely regulated.
Republicans are trying to either kill or reform the bureau in its infancy, and for good reason. Regulatory agencies, regardless of how virtuous they may appear, can cause a lot of mischief if they are not accountable, and this one has some huge structural defects.
The biggest is that it would be run by a single director appointed by the president. Republicans support a bill that would replace the director with a board, similar to how other regulatory agencies are structured. This also would give both political parties some representation among the agency's leadership.
Other proposed bills would allow the Financial Stability Oversight Council, which includes top banking regulators, to overrule the new agency by a majority vote, and would prevent the agency from assuming any powers under its current makeup until the Senate confirms a director. That last one is important as the president's newest appointment, former Ohio Attorney General Richard Cordray, faces a tough climb. Some people believe the president will have to install him as a recess appointment, but that wouldn't work if the law required a Senate-confirmed director.
Of course, Republicans have little real power to pass any of these bills or change the new bureaucracy, except to delay Cordray's appointment for awhile. Any such law that passed the House would be unlikely to make it through the Senate and would have absolutely no chance against a presidential veto.
The new agency is being touted as a watchdog for the little guy, the consumer, and even some of the folks who told Rasmussen they want smaller government would hesitate to oppose that. We agree in principle that consumers need protection against deceptive lending practices. What few people understand, however, is that this new bureaucracy does not treat all non-bank lenders equally.
For instance, auto loans are exempt. Car buying is a stressful and often confusing lending experience for many Americans, and yet somehow the auto lobby was able to carve itself out. Insurers also get a pass on regulatory reforms. Significantly, the huge financial regulation law does nothing to regulate Fannie Mae and Freddie Mac, the quasi-government financing giants that played a key role in the housing collapse.
And there are reports the new agency will seek to punish banks that don't give enough business loans to minorities. Racism is wrong, but so is a policy that would encourage risky lending.
The financial collapse happened despite a legion of regulators, many of whom had become too cozy with the folks they were regulating. Adding another stifling layer of regulation filled with loopholes does not seem to be the best hedge against future problems.