The Consumer Financial Protection Bureau (CFPB) has long been the ire of constitutional accountability due to its tenuous funding system, but its negative effects on consumer credit are not being discussed enough. At a time when inflation seems to be rearing its ugly head again, consumers can’t afford to have their access to credit stifled. It is incumbent on Congress to rein in government agencies that cease to fulfill their constitutional function and instead become undemocratic threats to consumer welfare.
Congress has yet to settle the CFPB funding structure issues, which may be unconstitutional. Because the CFPB is funded directly by the Federal Reserve and is thus not subject to Congressional discretionary spending, some have pointed out that Congress’s constitutional rights may be illegally thwarted. Because of the Appropriations Clause of the Constitution, Congress must hold discretion authority over all funds to federal agencies, something it arguably does not have regarding the CFPB.
This alone should give Congress the impetus to investigate the constitutionality of the Bureau since Congress has to be a check on Executive power. Beyond this, however, Congress also has a duty to their constituents to protect their interests, and now more than ever, CFPB is working against the constituents of Congress.
The CPI report for April came in hotter than expected, making April the second consecutive month of inflationary increases after months of decline. April was only the latest month of high inflation in a multi-year inflationary uptrend. Today, Americans spend over $700 more per month than two years ago. These expenses come from increased costs in basic goods and services like gas and groceries. This comes as wages have remained relatively stagnant since lockdowns ended in 2021, meaning average Americans are spending more and making about the same or less. All that adds up to a strenuous financial environment for many Americans, who may need access to credit to pay their bills.
One example is the proposal to cap credit card late fees at $8 or 25 percent of the minimum period payment. Though on the surface many could be sympathetic to the idea of minimizing consumer late fees, when delving deeper it is clear that this proposal would only prevent on-time borrowers from accessing needed credit. Fees are set at a certain price for a reason, partly to pay off overhead costs (which average $38 for failure to repay) that need to be made up elsewhere, and partly to incentivize timely payments. Minimal late fees have been shown to increase delinquency, which forces banks to take losses on credit cards with only two solutions, tighten credit extension to fewer people or raise rates on everyone to pay for the tardy.
The CFPB has gotten so out of hand in rule-making and credit restriction that the lending industry recently called for the agency to issue a “traditional, consultative rulemaking process to set clear rules of the road for financial services and other industries the CFPB regulates.” In the CFPB confusion, both credit lenders and consumers are being confused and trapped in the bureaucratic mess at a time when credit is especially important.
A recent survey conducted by Quicken found that two in five Americans today state they rely on their credit cards now more than ever before. Without credit cards, consumers may be unable to make end-of-month payments on basic necessities. As nearly 40 percent of consumers now report living paycheck to paycheck, there is a need for extensions of credit to make payments. Congress ought to protect its consumers’ access to credit by allowing the market to set appropriate prices, especially when these price caps come from a constitutionally dubious agency with questionable authority.
The courts are investigating the CFPB’s constitutionality, but Congress needs to protect its constituents by bringing more attention to this agency and flexing its discretionary muscles. As stated previously Congress has the discretionary authority to extend funds to agencies, but it is up to Congress to enforce this authority. The American consumer will be better off with an active Legislative branch working in their interest to maintain credit opportunities.
This article was also published in the Economic Standard here.
Isaac Schick is with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.