Time to Depoliticize Financial Reform
Late last month, Richard Cordray stepped down as director of the Consumer Financial Protection Bureau (CFPB) and named Leandra English, his chief-of-staff, as his successor. Cordray made this move in part to prevent President Trump from appointing Office of Management and Budget Director Mick Mulvaney as the CFPB’s interim director. When the president appointed Mulvaney to the position anyway, English filed suit.
This power struggle is fascinating in part because it presents a mini-constitutional crisis, a battle of competing statutory interpretations as well as the separation of powers. But it is also another front in the cold war between the new administration and those in the government unwilling to acknowledge and accept its authority. To this extent, the CFPB debacle shows just how politicized the bureau has become. America’s consumers deserve better.
The president should use the current situation as an opportunity to depoliticize financial reform by calling for a comprehensive study of the true drivers of consumers’ financial woes. That will take more than just new leadership at the controversial young bureau; it will also require an independent presidential commission.
The CFPB was born out of a post-crisis environment in which partisanship and reactive policies eclipsed thoughtful lawmaking aimed at long-term recovery and progress. Since its inception, the bureau has demonstrated its partisan biases through a multitude of regulatory actions that lack empirical support and sometimes even go against the findings of its own research, as in the recently repealed Arbitration Rule. Cordray’s departure provides an opening to take a step back from ideology and a step toward accountability, transparency, evidence-based policymaking.
Although achieving accountability and transparency in a large bureaucratic entity won’t happen overnight, evidence-based policymaking is immediately actionable. A good first step is to establish a presidential commission to study the structure and state of consumer finance in the U.S. — something neither Congress, nor the President has done in nearly 50 years.
In 1970, when the Presidential Commission on Consumer Financial Structure received its charge, total consumer credit outstanding stood at $128 billion. The current Federal Reserve estimate for total outstanding consumer credit is $3.788 trillion. Only 16 percent of Americans had credit cards in 1970, compared to over 70 percent today. Until 1974, credit card issuers could also deny approval to women who did not have a male cosigner. Undoubtedly, what determines consumer credit needs and risks has changed over the years along with financial industry risk factors and regulations.
Tucked away in the 1970 Economic Report of the President to Congress are words that still ring true nearly a half-century later:
Our expanding and increasingly complex economy must have financial institutions reflecting the vitality that comes from vigorous innovation and competition. Financial services required by tomorrow’s economy will differ in as yet undefinable ways from those appropriate today … and our financial institutions and financial structure must have the flexibility that will permit a sensitive response to changing demands. Thus the time has come for a thorough examination of needed changes in our financial institutions and our regulatory structure.
Today’s consumers and regulators also face uncertainty about innovation and market risks, but their predecessors were not operating in the dark. They had a comprehensive report that shed light on how to best approach their challenges. Despite nearly five decades of economic change, the invention of the internet and e-commerce, the financial crisis, and seven years of the Dodd-Frank Act, no President has convened a commission with a focus on consumer finance since 1970. Forty-seven years is far too long to go without a robust, bipartisan examination of this essential part of the nation’s economy.
By establishing another Presidential Commission on Consumer Financial Structure and Regulation, the president could bring together academics, industry experts, and consumer advocates from across the political spectrum to examine thoroughly the structure and state of consumer finance in the United States and make recommendations about what 21st-century financial reform should look like.
An independent, bipartisan study of the financial system would help remove the uncertainty surrounding consumer financial challenges and aid policymakers in identifying what works — what really fosters or hampers financial access as well as meaningful economic participation. The Commission could gather and analyze consumer credit data and case studies, providing a common understanding of market realities and empirical support for policies that ensure consumers left behind by the current system have access to a robust financial market that works for them.
President Trump has an opportunity to bring all key stakeholders together to address the current challenges of consumer finance in an empirical way — finally moving beyond the financial crisis and into the 21st century.
Kyle Burgess is Executive Director of Consumers’ Research, the nation’s oldest consumer organization.