Nicole Neily
Last year’s monstrous Dodd-Frank financial regulation bill contained a number of awful little programs – one of which was the Consumer Financial Protection Bureau (CFPB), the brainchild of Elizabeth Warren, a Harvard Law School professor. Ostensibly, this bureaucracy was created to protect consumers from a predatory financial system by creating new disclosure requirements, promoting “fair competition,” and holding companies accountable if they break the law.

On May 24, Warren appeared before the House Oversight and Government Reform Committee to discuss her role and the CFPB writ large. Warren, whose appointment has been stridently opposed by Republicans, faced a tough crowd – and for good reason.

The Cato Institute’s Alan Reynolds discovered that Warren co-authored a 100-page article in the November 2008 Pennsylvania Law Review, "Making Credit Safer." As Reynolds states, “Her thesis is that ‘many consumers are uninformed and irrational,’ so they need to be protected from themselves.” Quite the paternalist!

When the government restricts banking options from consumers that it deems “risky,”--which is exactly what the Dodd-Frank legislation does and what the CFPB will continue to do--it sends the message that Americans aren’t responsible enough to make their own choices. It’s condescending to assume that bureaucrats know what’s best for individuals, or can sort out who does or doesn't deserve a loan. We need to stop relying on technocrats to fix the country's woes – because quite simply, they can’t, and their fixes often create more problems than they solve.

Banks operate by borrowing money at low rates and loaning it out at higher rates – making a profit in the difference. The higher rates that they charge borrowers are calculated, in part, by the risk that banks feel their customers pose. When customers are a higher risk and more likely to default, banks charge higher rates, which help to offset possible losses from defaults. Should banks not be allowed to charge higher rates to these high-risk customers, they will simply choose to not lend to them at all – and leaving those customers with fewer options to access needed capital.

The market protects consumers. Businesses operate and thrive based on their reputations. If businesses and corporations are exploitative, they'll lose market share. And if businesses lie, deceive, or collude, that’s called fraud – which is still against the law – and they can be prosecuted accordingly. We don’t need a brand-spanking-new agency to do that.


Nicole Neily

Nicole Neily is a Senior Fellow at the Independent Women’s Forum.