By Kevin Mooney | Watchdog.org
Elizabeth Warren needs no introduction. But she does have some explaining to do.
The former Harvard Law School professor who is now a Democratic U.S. senator from Massachusetts, Warren played an instrumental role in setting up the Consumer Financial Protection Bureau, created under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
She said at a speech before the Credit Union National Association in February that she wanted to “to build a level playing field and a consumer credit market that works for families, works for the financial services industry, and works for our economy.”
But there’s a problem.
The rules and restrictions Warren helped put into place via the CFPB actually work against the best interests of the same consumers she purports to represent, according to policy analysts, credit union managers, community bank executives and other elected officials.
“Dodd-Frank and the rules it sets through agencies like the Consumer Financial Protection Bureau means that you may not be able to get a mortgage or even something as simple as a wire transfer from your community bank or credit union, even if you have stellar credit and are a longstanding customer,” John Berlau, an economist and financial analyst with the Competitive Enterprise Institute, warns.
The regulatory uncertainty and broad authority Dodd-Frank attached to the CFPB has already forced Jim Purcell, chairman and CEO of The State National Bank of Big Spring in West Texas, to drop many types of mortgages and wire transfer services.
“In fact, big banks, the very banks at the center of the problems that spurred the enactment of Dodd-Frank, are among the new law’s great beneficiaries, precisely because they can much more easily shoulder Dodd-Frank’s compliance burdens,” Purcell explained in testimony to the House Financial Services Subcommittee on Oversight and Investigations last July. “Big banks have armies of lobbyists, lawyers, consultants and compliance staffers, without denting the banks’ profitability.”
Purcell has also said residential mortgages are no longer a viable business option as a result of additional escrow and data collection requirements included in the legislation. That’s not comforting news for those average middle-class Americans who Warren mentioned in her speech.
Purcell is not alone in his assessment. In April, credit union managers stood up to challenge Warren’s congenial view of Dodd-Frank on Capitol Hill.
“Although I recognize the need for appropriate regulation, too often credit unions end up paying the price for abusive practices perpetrated by non-credit union entities,” Mitchell Reiver, general counsel for Melrose Credit Union in Queens, New York, said in testimony at a hearing before the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit.
Reiver said as the CFPB sets new rules to prevent future financial meltdowns, the burdensome regulations cause credit unions to spend more resources on compliance and less on services that benefit their members.
Legal challenge identifies constitutional violations
Although Warren, and other Dodd-Frank proponents, continue to sell the legislation as a response to the financial crisis of 2007-2008, the law actually solidifies practices such as “too big to fail,” that initially led to the crisis, according to a lawsuit CEI has filed against Dodd-Frank in partnership with the State National Bank and the 60 Plus Association. The suit challenges constitutionality of the bureau, the recess appointment of Richard Codray as director of the CFPB, and the Financial Stability Oversight Council created under Title I.
There are also 11 state attorneys general who have joined with the plaintiffs to challenge the constitutionality of the Orderly Liquidation Authority, created under Title II, on the basis of alleged property rights violations.
There are no effective “checks and balances” in place to ensure accountability and transparency, the suit alleges. For starters, the CFPB budget is administered through the Federal Reserve. This means Congress cannot exercise the “power of the purse” over the bureau. Moreover, there is no meaningful judicial review of the bureau’s actions since Dodd-Frank requires the courts to give extra deference to the board’s legal interpretations.
Rep. Scott Garrett, R-N.J., a leading Dodd-Frank critic, has some advice for Capitol Hill colleagues who are sincere about advancing the best interests of average Americans.
In an email message to Watchdog.org, he wrote:
“Dodd-Frank hurts consumers because it creates uncertainty in the marketplace by granting the CFPB a near limitless grant of authority and is exempt from the constitutional system of checks and balances. This is further exasperated by the illegitimate manner in which the CFPB director was appointed, thereby calling into question all CFPB actions taken to date. Consumers and businesses do not know the rules of the marketplace as they can change at any moment and there is very little chance that CFPB rulings can be reversed.”
Echoing the sentiments of financial industry leaders, Garrett also expressed concern that CFPB’s “web of regulations will hurt small business as they lack the resources to comply” making it more difficult for them to sustain profitability. Contrary to what Warren and other Dodd-Frank boosters have said, Garrett is convinced CFPB regulations will result in a substantial reduction in the availability of financial products and services to the average American.
“One example of this is the limit on interchange fees, which are likely to increase the cost of using banking services as well as price out working class Americans,” he said.
Warren’s office did not respond to a Watchdog request for comment.
Contact Kevin Mooney at Kmooney@watchdog.org or follow him on Twitter @KevinMooneyDC