Zywicki in Washington Times: Consumer Financial Protection Bureau Must Put Consumers First

In a Washington Times op-ed, Professor Todd Zywicki discusses the forthcoming Consumer Financial Protection Bureau (CFPB) with a warning that the planned agency is not structured to weigh the tradeoffs in a balance between the benefits of consumer protection and the economy of greater competition, lower prices, and enhanced safety and soundness.

"Although headquartered within the Federal Reserve, it remains largely unaccountable to oversight by the Federal Reserve Board or any other entity except through a cumbersome and limited oversight process by a council of regulators -- which even then can act only if two-thirds of the council thinks a proposed action by the bureau would imperil the safety and soundness of the nation's financial system," says Zywicki.

A better model, he says, is the Federal Trade Commission, where the mission of the Bureau of Consumer Protection is nearly identical to that of the CFPB. "But the final decision on whether to acts rests not with the director of the consumer-protection bureau, but with the five-member bipartisan commission to which the bureau reports," Zywicki points out.

"The new CFPB promises higher costs and reduced access to credit for American consumers -- the only question is how much of an impact will be felt," Zywicki warns, saying, "Congress shold take steps to build greater accountability and mission focus into a new consumer-protection regulator."

ZYWICKI: Bureau of Consumer Protection must put consumers first, The Washington Times, May 6, 2011. By Todd J. Zywicki.

"As an unaccountable bureaucracy with a single head, the bureau will be susceptible to bureaucracy's worst pathologies: a tunnel-vision focus on the agency's regulatory mission, undue risk aversion and agency overreach. While a more coherent consumer-protection regime is needed, consumer-protection goals often can conflict with other goals, such as promoting competition, lower prices and expanded choice for consumers; and ensuring safety and soundness. For example, the law gives the bureau new authority to regulate slippery mortgage brokers. Although stricter regulations of mortgage brokers theoretically could reduce fraud (although there is no evidence that this is the case) brokers also provide a salutary competitive check on traditional bank lenders. Research by economists Morris Kleiner and Richard Todd finds that overly restrictive regulation that reduces the number of mortgage brokers in a given market results in higher prices and lower quality for consumers."

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