The Consumer Financial Protection Bureau's rule on short term lending is one of the most controversial and potentially detrimental regulations proposed by the government entity, according to legal experts, regulators and media reports. Many argue that the organization disregards constitutional restrictions and avoids accountability to achieve its goals. In particular, five recent criticisms stand out:
The Obama Administration's SBA believes the Bureau's regulations hurt small businesses and customers. In a comment letter regarding the CFPB's proposed short-term lending rule, the Small Business Administration's Office of Advocacy (SBA) accused the CFPB of disregarding the Small Business Regulatory Enforcement Fairness Act (SBREFA), which requires the Bureau to carefully consider the impact of proposed regulations on small entities. During the SBREFA process, the SBA emphasized that the CFPB underestimated the harm that the proposed rules would impose, but it said its opinions were largely ignored.
The CFPB violates state rights. Eighteen Republican Attorneys Generals wrote the Bureau's proposed regulations will usurp state authority in governing the financial industry. State governments have tailored legislation to the needs of the local populace, carefully considering rules to maximize their effectiveness. Instead, the CFPB has is seeking to force states to comply with an over-generalized set of proposed regulations. This may damage state authority and weaken effective legislation that benefits consumers.
For an independent agency, the Bureau appears politically biased and partisan. First, Politico reported that activist groups such as the Center for Responsible Lending and the National Consumer Law Center have been directing policymaking at the CFPB since the agency opened its doors. Second, a recent Government Accountability Office (GAO) report found that among federal agencies, the Bureau spends by far the most on public relations efforts and advertising. According to the Wall Street Journal, the majority of these funds were allocated to GMMB Inc, an Obama-Clinton campaign and advertising firm. The Bureau's ties to a left-wing agency illustrate the fact that the CFPB is significantly biased in forming regulatory policy. Last, the CFPB is the most partisan agency in the federal government, according to campaign finance data, with every political contribution going to the Democratic Party or allied groups.
Proposed regulations prohibit free speech by silencing companies under investigation. The American Civil Liberties Union (ACLU) and other legal experts argue that new regulations proposed by the CFPB would violate the first amendment by forcing companies to stay silent while under investigation by the Bureau. The CFPB continually drives its political agenda in the courts of law and public opinion, seeking to ensure that its controversial policies are enacted or enforced.
The CFPB's structure is unconstitutional. The D.C. Court of Appeals recently ruled that the CFPB is unconstitutional because its director, Richard Cordray, is not subject to the supervision and control of the Executive Branch. Prior to the decision, the CFPB could create regulatory policy without political repercussion, violating the principles of checks and balances. Many have argued the CFPB should halt its rulemaking process until these issues are resolved. Moreover, this raises questions about the legality of all regulations created by the CFPB since its inception. The Bureau has appealed the court's ruling.
The CFPB has been hit with countless accusations against its legality and efficacy. At best, these accusations indicate that the Bureau engages in ideological policymaking, resulting in financial regulations that are devastating for consumers and companies of all sizes. At worst, the Bureau is side-stepping democracy to authoritatively dictate unconstitutional regulations. In either case, these grave issues need to be resolved before the Bureau enacts further regulatory policy.