Solveig Singleton
Senator Elizabeth Warren claims that the Trump administration’s cutbacks at the Consumer Financial Protection Bureau (CFPB) cost consumers $26.5 billion. But the method she used to calculate this scary number is hopelessly oversimplified. Regulation has costs, and those costs need to be balanced against benefits. Indeed, the Dodd-Frank Act calls for the bureau to consider the costs and benefits of its actions, especially how these actions affect consumers’ access to credit. Senator Warren seems to have forgotten this basic instruction.
Under the Biden administration, the CFPB capped credit-card late fees and limited bank overdraft fees. Senator Warren claims that these rules would have saved consumers over $20 billion. But both the caps on late fees and on overdraft fees would also have harmed consumers. Late fees discourage consumers from making late payments and overspending. And if fees are capped, card issuers are likely to limit the costs of late payments by lending less to consumers in need or charging higher fees elsewhere—a well-known effect of regulating credit card charges. The CFPB’s limit on overdraft fees would have saved people who bounce checks some money in the short run—but other consumers would lose out, as overdraft fee caps would lead banks to reduce overdraft coverage and raise minimum account balances.
If Senator Warren’s idea that price caps on balance benefit consumers really made sense, why not put price caps on everything—bookkeeping services, tofu, shoelaces, car repairs? But we do not do that. Because we know that price regulation of gasoline, insurance, housing, financial services, or anything else leads to shortages, loss of quality, higher prices elsewhere, and reduced competition and innovation.
Senator Warren also claims that the CFPB’s decision to drop enforcement actions would cost consumers $4 billion. This would be a stronger argument if the enforcement actions were justified. If no one is stopping fraud, consumers will be harmed. But too often the bureau’s actions rely on more questionable legal theories or unfair strategies. Or they duplicate the work of other agencies, as the bureau is not the only agency that fights fraud. Reviewing the suits abandoned by the bureau, some (like the suit against Zelle) are highly questionable, others less so—but the alarming number of court cases rejecting the bureau’s legal theories (including the cap on credit card late fees) makes it hard to give the bureau the benefit of the doubt in any case.
To figure out the true costs to consumers, we would need to know how markets would respond to each action. Would providers hesitate to offer some services to some consumers? How would they change prices? The Council of Economic Advisers offers its own take on the costs of the bureau to consumers here: aggravatingly, the CEA does not consider possible benefits of the bureau’s actions, but at least recognizes that regulation has complex downstream consequences.
Bottom line: The past bureau has indulged in substantial overreach and, often, if not always, has done more harm than good. Senator Warren’s $4 billion-cost-to-consumers number is misleading, and the total number of $26.5 billion is absurd.
Worse, the numbers are a distraction. The bureau’s extraordinarily broad power and discretion are a much larger problem. This fundamental defect underlies the Democrats’ unhappiness with the Trump administration’s handling of the bureau and Republicans’ unhappiness with the bureau under President Biden.
As Rep. Andy Barr points out in a lively manner during the interrogation of Russ Vought, the Bureau’s unchecked discretion is Congress’s responsibility and something that Congress can fix by pursuing reform. Alternatively, one could get rid of the bureau and find other enforcers to do the necessary work.
