In one of her first public speeches as director of the Consumer Financial Protection Bureau, Kathy Kraninger stated that the agency would switch its focus to working with financial institutions to protect consumers, rather than enforcing laws against them as the first option of protection. She is exactly right.
When reading the name of the Consumer Financial Protection Bureau, it would seem obvious that the agency’s sole mission is to protect consumers. But a closer look shows the agency has grown into a massive bureaucratic arm of the government that’s sole purpose has been to create regulations that make credit more expensive and less available to consumers.
Since its creation in the Dodd-Frank Act of 2010, the agency has done little more than become the poster child for bureaucratic excess. In 2011, the bureau employed 58 people. By 2017, that number had grown to nearly 1,700.
It’s no wonder that in its almost eight years of existence the bureau managed to rack up more than $3.1 billion in regulatory costs from only 31 regulations.
What’s more, the bureau is the only government agency that doesn’t receive its funding appropriations from Congress and, instead, receives a fixed percentage of the Federal Reserve’s annual budget. This alone has made many, including Supreme Court Justice Brett Kavanaugh, call its constitutional existence into question.
That aside, the bureau has done little beyond creating and enforcing burdensome regulations on financial intuitions, ultimately hurting consumers. Take the creation of the payday lending regulations under the former director, Richard Cordray.
These mandates included a sweeping overhaul of how payday lenders could run their business that was designed to make it too costly to provide loans and potentially wipe out the entire industry. This would force millions of working-class Americans who use small-dollar lenders to turn to the black market.
Thankfully, under the leadership of Kraninger, the agency has halted some of the most dubious enforcement actions and stipulated that many of the most burdensome regulations would be rescinded.
For small institutions, these regulations and others created from the Consumer Financial Protection Bureau can be the difference of staying in business or being forced to shut down.
Kraninger understands the true role of the bureau. Rather than punishing entire industries with burdensome, one-size-fits-all regulations or aggressive enforcement actions, Kraninger has implemented more targeted supervision and worked more closely with financial institutions to prevent consumer harm before it happens.
She has directed agency officials to adopt a more collaborative approach to supervising financial institutions, suggesting that private interactions between the agency and institutions would make everyone better off—industry, consumers, and the bureau itself.
This more hands-off free-market approach of allowing the bureau to target bad actors instead of an entire industry is the direction the bureau should always have sought out. If only other agency heads would follow her lead.