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Reining in a Runaway Agency

By Rep. Barry Loudermilk (R-GA)
Op-ed run exclusively in The Atlanta Journal Constitution

Thomas Jefferson stated, “When the government fears the people, there is liberty; when the people fear the government, there is tyranny.” Since serving in Congress, I have spent a lot of time meeting with people throughout my district, listening to their concerns, and I have heard so many business people explain the challenges they face. From small mom-and-pop shops to larger corporations, there is a consistent concern about the growth of government and the impact federal regulation has on their ability to successfully operate their businesses. However, when I meet with someone in the financial services sector, whether a community banker, small financial advisor, or an executive of a larger financial institution, they all express a genuine fear over the unconstrained power of one government entity, the Consumer Financial Protection Bureau (CFPB).

The CFPB was created under the guise of protecting consumers from unfair practices of financial institutions. However, this agency, which is arguably the single most powerful and least accountable in our nation, has amassed an extraordinary amount of control and is not subject to the checks and balances imposed by the U.S. Constitution. Being exempt from fiscal oversight of Congress, the operational control of the president, and only subjected to limited judicial review, the CFPB comprises all three branches in one agency, which makes it a virtual autocracy.

It is this unconstitutional structure of the CFPB that is the core problem and source of the growing fear of the agency. While most federal agencies are led by a board of directors or a single agency head, which can be installed or removed by the President, the CFPB is effectively a government unto itself. With broad authority to arbitrarily set rules and regulations, combined with their strong enforcement powers, even the federal courts have expressed concern over the agency’s structure. The DC Circuit Court of Appeals stated, “[The CFPB] possesses more unilateral authority… than any single commissioner or board member in any other independent agency in the U.S. government.”

How could an agency that violates the basic tenets of our Constitution come into existence? The CFPB was a creation of the Dodd-Frank Act, passed by the Democrat-led 112th Congress. Through this legislation, Congress not only surrendered its own lawmaking authority to the CFPB, it also set up a funding mechanism to exclude any Congressional control over the agency’s funding. Congress even went as far as limiting the court’s ability to adjudicate cases against the agency. The only checks and balances that exist with the CFPB are the checks written by businesses penalized through the agency’s ever-evolving rulemaking and the struggles of Americans trying to balance their checkbooks because of the chokehold this agency has on our businesses.

It is the unfettered power of the CFPB that causes an unsettling fear in the banking and financial services community. The agency sets its own guidelines, makes its own rules (often without adequate notice or input), and can enforce rules without due process. As one president of a small bank explained, “The CFPB has the authority to walk into my bank and lock the doors without notice. There is little Congress can do since you don’t control their budget, nothing the president can do since he can’t fire the [CFPB] Director, and little the courts can do since they have been limited as well.”

While the CFPB has not directly locked the doors of any banks, they are going after businesses in other ways. Under the façade of a consumer complaint database, the CFPB allows consumers to publically post complaints against businesses for virtually any reason. Currently, there are over 130,000 complaints against businesses in which consumers have posted a narrative of their side of the dispute. However, the business is only allowed to respond by selecting one of the nine responses prescribed by the CFPB. Without any investigation or verification, the CFPB makes these complaints public. With no proof of validity and inadequate opportunity for businesses to respond, it appears that the CFPB database exists to name and shame businesses - and, once the damage is done, it is difficult for a business to rebuild its reputation.

The damage by the CFPB autocracy is not isolated to the business community. A recently released 1,700-page rule regulating prepaid credit cards has significantly impacted consumers who do not use traditional banks. These consumers rely on prepaid cards for their daily transactions. The CFPB, through its rulemaking authority, has stripped away a key consumer protection option offered by the prepaid card companies. Many banks offer overdraft protection to help families whose accounts temporarily run low, allowing them to make purchases until adequate funds are deposited in their accounts. Prepaid card companies also provide overdraft protection to their customers. However, the CFPB rule would disallow this overdraft protection.

Overdraft protection for prepaid cards was created due to the demand of those who rely on these cards. Paula, a constituent from Marietta, said, “As a single mom, it helps me get by if I need to get gas or pay a bill.” From Duluth, Lavora stated, “I am a single parent and, sometimes, we need it when we are at the grocery store or when kids need something for school.” Erica from Augusta said, “Sometimes it’s the difference between having electricity and using candles.”

While this rule is devastating to prepaid card consumers who may need a little help between paychecks, the impact on the prepaid card industry is equally as devastating, especially in Georgia. Georgia is home to seventy percent of the nation’s transaction processing and the growing FinTech (financial technology) marketplace. The bureaucratic red-tape, reporting and regulatory controls imposed by this one rule would cost prepaid card providers up to 138,000 hours of regulatory compliance work and more than five million dollars in upfront costs - with millions more to follow.

The irony is that the CFPB, which has virtually no oversight, accountability or transparency, is arbitrarily imposing massive regulations on an industry that was responding to the needs and requests of its customers and experiencing high customer satisfaction.

The Constitution empowers Congress to make law, the Executive Branch to enforce law, and the Judicial Branch to interpret the law when conflicts of interpretation arise. While there may be a role for a financial service consumer protection agency, the CFPB must be stripped of its law making authority, brought under the oversight and accountability of Congress, and its management under the control of the president.

Fortunately, the Financial CHOICE Act, a bill being introduced in the Financial Services Committee, restructures the CFPB into a new agency that enforces laws and regulations approved by Congress and receives its funding through Congressional appropriations. Furthermore, the director of this new agency would be appointed and could be removed by the president. Because of the trepidation the existing autocratic agency has brought to the marketplace, the CHOICE Act renames the new agency the Consumer Financial Opportunity Agency (CFOA).

The CFPB is only one of the many problems that Dodd Frank has caused consumers and businesses. Now is the time to correct this wrong by removing the bureaucratic barriers that are closing off the economy for entrepreneurs and businesses. We need to open up the economy to Main Street, not just protect Wall Street, and ensure that our government is accountable. The Financial CHOICE Act is a huge leap for consumers and small business owners, removing government bureaucracy and, once again, widening the path for Americans to pursue their dreams and achieve success.