WASHINGTON (Legal Newsline) -- Five years after its inception, officials for the Consumer Financial Protection Bureau (CFPB) are looking back on its accomplishments.
But some say the agency, which was created in response to
the financial crisis in the late 2000s, is doing more harm than good. Craig
Nazzaro, an Atlanta lawyer who specializes in CFPB law, said the agency has not
examined the long-term effects of what he considers “over-regulation.”
CFPB Director Richard Cordray | The Consumer Finance Protection Bureau
“They don’t weigh the effect that any regulation or order or
consent order will have on the operations of a [financial] institution,”
Nazzaro told Legal Newsline. “By doing
so, they risk the issue of putting such high regulations on institutions that
hinder the consumer’s ability to access credit down the road.”
The CFPB was created in 2011, charged with combating
predatory loans and credit practices that hurt consumers. This included fining financial
institutions and lenders that were engaging in predatory practices, along with educating
consumers about the brevity of their finances.
CFPB Director Richard Cordray
said recently that in the past five years, the regulator has issued $11 billion in relief to more than 25 million consumers.
“I think we’ve made a lot of
change in how financial institutions treat consumers,” he said in the video
interview, posted on the CFPB’s website in July. “They know that they have to
comply with the law, that somebody is looking over their shoulder to make sure
they do that, that somebody is standing on the side of people to make sure they’re
treated fairly. That’s immensely important.”
Nazzaro said it is important
to have some regulation on financial institutions to ensure they’re treating
customers fairly, but when the regulation becomes too strict – and when the
rules are in what Nazzaro calls a “gray area” – it forces banks and lenders to
reconsider the services they’re willing and able to provide.
Specifically, Nazzaro said
people who are trying to build or rebuild their credit will have
trouble finding banks willing to take them on and could encounter higher interest
rates because they’re high risk borrowers.
“Over-regulation could be
freezing those that need credit most out of the market,” he said.
Nazzaro said lenders are likely to challenge the way things are going.
going to see more people test the waters of pushing back on the bureau. In the
first five years, you had the approach of, ‘We’ll work with you, we’ll pay the
fine,’ and not too many people pushed back," he said.
"But I think the more institutions
try to defend their ground, you’ll start to see the rules get more defined.”
Cordray has dismissed this
type of criticism, saying the agency has built a trusted relationship with
consumers and created stronger incentives for financial institutions to comply
“That’s good all around,” he
said in a statement. “It’s a win-win.”
Nazzaro said he’s unsure
whether any changes will come about in 2017 when a new president takes office,
and conceded that some of the agency's changes have been positive. He
worries, however, about unintended consequences down the road.
“You have to look at the
industry as a whole,” he said. “I think they’re doing a great job at protecting
consumers, but I think it would be prudent to take into effect the costs on the
institutions they’re regulating.”