“Jobs,” and how government can “create” them, are on many people’s minds today. Considering the state of our economy and the job market, even those who support federal activism can reasonably wonder how much government can actually do. We frankly see things the way Energy XXI CEO John Schiller does on job creation: “if the government would get out of the way, from a regulation standpoint, and let us [XXI] do what we do [sic] good you’ll see us continue to hire and grow this economy.”
Many have pointed at perennial whipping boys like EPA, FDA, and SEC when arguing for a regulatory moratorium. For a change, we will instead spotlight the newest entry to our federal regulatory alphabet soup: CFPB, the Consumer Financial Protection Bureau. And more specifically, a proposed CFPB rule that could affect business entities as large as Wal-Mart and as small as online payment facilitator PayPal.
“Larger Participants.” The Dodd-Frank Act granted CFPB authority over “larger participants” in consumer finance markets, but, as Congress too often does, failed to define that term. CFPB issued a formal proposed rule which defined “larger participants,” and accepted public comments until August 18. It received 518 comments. Professional activist groups urged CFPB to define the term broadly. Such an expansive definition, as many other commenters pointed out, will impose entirely new regulatory requirements and costs on retailers and other non-bank businesses, with few if any concrete benefits.
No Cost-Benefit Analysis. How high are the costs or helpful the benefits? As the U.S. Chamber of Commerce noted in its comment, we don’t know, since the Bureau, in direct violation of Dodd-Frank, offered no information about costs or benefits. The proposal should be pulled back and redone based on that alone. Assuming CFPB won’t do that, it must at least give serious consideration to the concerns other comments raised.
Targeting Retailers? Primary among the concerns is that CFPB will seize jurisdiction over entities whose activities in financial markets are incidental compared to their non-financial activities. Such businesses will have to devote substantial compliance resources to new registration, reporting, and examination rules. Dodd-Frank specifically exempted retailers from many of its regulatory requirements, and CFPB is being urged to do the same. If retailers are labeled as “larger participants,” will Wal-Mart, for instance, continue to offer its customers (many lower-income) convenient services like check cashing and bill payment? CFPB should at a minimum embrace the suggestion of the Retail Industry Leaders Association and include a presumption that any retailer “not principally engaged in financial activities” is exempt. That way, only entities masquerading as retailers, but which are in fact mostly or entirely engaged in banking activities, would be regulated.
A Risk-Based Approach. When deciding what businesses are “larger participants,” CFPB should not give overarching consideration to generic factors such as profits, number of employees, or geographic location. They should make their determination based on the risk of harm that businesses’ financial services pose to consumers and the financial system. CFPB should also take care not to overlap or duplicate the regulatory activities of other federal financial regulators or state regulators (including attorneys general). Now not a time for piling on (not that it ever is).
Of course, more regulation may create some new jobs for lawyers, compliance professionals, and regulators. But with all due respect, those are not the kind of jobs that will help expand our economy. CFPB should withdraw its proposal and do the required cost-benefit analysis. If it decides to risk a legal challenge and proceed anyway, CFPB should take a very narrow approach to defining “larger participant,” which will allow the Bureau flexibility to see how this new regulatory concept plays out in practice.