Why does one unelected bureaucrat get to decide credit card fees?

March 27, 2024 1:18 am
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Director Rohit Chopra and his Consumer Financial Protection Bureau (CFPB) elevated politics over economics to give President Biden two applause lines in his State of the Union address this month as he took a victory lap for allegedly saving consumers $20 billion annually in credit card fees.
In an obviously coordinated effort with the White House against what the president has popularly labeled “junk fees,” the CFPB reduced the allowable cap on credit card late payment fees from $32 to $8. But don’t get fooled into thinking that you will save $24 each time you pay your credit card bill late, or that it is now easier to skip a payment altogether.

An opinion we co-authored last year explained — apparently unsuccessfully — how such economic virtue signaling ends up hurting the people who need credit the most. The analysis is simple: If government rules arbitrarily prevent lenders from recouping the cost of making credit available to poor credit risks — i.e., borrowers who don’t pay on time — they won’t make the loan and there will be no late fees to worry about.
That makes the White House’s and CFPB’s claim of saving 45 million Americans an average of $220 annually largely illusory. Lawsuits filed against the CFPB by industry representatives before the president’s address will no doubt explain that, notwithstanding political slogans, there is no free lunch.
There is, however, an equally significant issue embedded in this action by the CFPB. As more and more economic issues are politicized, it becomes increasingly dangerous to have large amounts of power in the hands of regulators who may succumb to the temptation to become political vigilantes.

That point could not have been illustrated more clearly than when a handful of elected officials or judges in Colorado, Maine and several other states decided that they could determine who can run for national office. Whether or not you are a fan of former President Trump, the potential for mischief when such powerful tools reside in the hands of partisan politicians was signaled by a unanimous Supreme Court decision overturning those officials.
Creation of the CFPB was a potentially good idea in 2010 that went stunningly awry when it was given the broadest of agency powers vested in a single agency head instead of the customary bipartisan board, while also being shielded from normal congressional budgetary limitations. Unlike virtually every other agency of government, the CFPB does not have to make its case to Congress for budget appropriations. Instead, the CFPB gets its funding from the Federal Reserve Board, which creates its own funding.
When one director of a federal agency can decide the rules the rest of us must live by, the character, experience and politics of that unelected director become critical. We the people can’t unselect them no matter how long they choose to stick around dictating policy.

So much power in the hands of a string of CFPB directors from both parties over the last decade has caused the agency’s policies and enforcement approaches to swing from pillar to post, based on what party is in power. For that we can thank Sen. Elizabeth Warren (D-Mass.), the force behind the creation of the CFPB in its current form. That is no way to run a government, and more importantly, no way to provide businesses with the certainty they need to flourish and build a vibrant economy. It is a question of knowing how to balance consumer protection with business reality, something political acolytes never seem to get right.
Governments know how to do some things very well. Many other things they do badly and ineffectively. Forcing businesses to operate based on political expediency is one of them. When politics becomes a religious blood-sport, as it seems to have in this country, bureaucratic agencies must be serious about finding the happy medium. Agencies like the CFPB headed by a single individual have outlived their usefulness, whatever that may have been.
There are 438 federal agencies employing nearly 3 million people in this country. That is a huge bureaucratic state by any standard. Most agencies are run by boards or commissions where there is at least some semblance of compromise. Policies created by five people rather than one tend to benefit from a broader array of insights and experience. Diversity of views is often the most effective route to the truth, producing more durable and realistic results. Shouldn’t that be the goal of the CFPB and the other 437 agencies that impact our lives?

Thomas P, Vartanian is executive director of the Financial Technology & Cybersecurity Center, having previously been a senior official at two federal banking agencies and the chairman of the financial services practices at two international law firms. He is the author of “200 Years of American Financial Panics” (2021) and “The Unhackable Internet” (2023). He has been an expert witness in several rate cap cases being litigated around the country.
William M. Isaac, former chairman of the FDIC & Fifth Third Bancorp, is chairman of Secura/Isaac Group, a consultancy to financial institutions globally. He is the author of “Senseless Panic: How Washington Failed America,” with forward by former Fed Chairman Paul A. Volcker. The views expressed are his alone and do not necessarily reflect the views of any firm with which he is or has been associated.
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