This month, Republicans on the House Financial Services Committee outlined their priorities for 2016, the two biggest of which are repealing the flawed Volcker Rule and reining in the Consumer Financial Protection Bureau. They hope to remove these overzealous regulations and allow the free market to work its magic.
Before Dodd-Frank was passed, former Senator Chris Dodd (D-Conn.) stated “no one will know until this is actually in place how it works.” The Volcker Rule is a clear example of this. The Volcker Rule, with limited exceptions, goes so far as to outright ban proprietary trading by banks, further restricting and reducing the liquidity of fixed income assets. To put it simply, the banning of this form of trading by banks hurts the amount of capital available in the market. Many economists agree that this reduces the ability of banks to resists shocks in the market and causes them to freeze up, leading to another possible banking crisis.
Another flaw of Dodd-Frank that Committee members hope to address can be found in the way the CFPB was created and administered through the law. The CFPB, under the law, has been granted a great deal of power over the financial institutions of the nation. They have the ability to cry foul on any consumer-credit product and then outlaw it completely.
The fact that there is little oversight on the outlawing of products is ridiculous and gives inherently too much power to an unelected regulatory body. To add salt to the wound, the CFPB is perpetually funded, meaning that they are not subject to congressional appropriations and the oversight that comes with it, but are always given money to operate.
Even more concerning is that the CFPB has been working to create a massive database of mortgage information, ranging from a borrower’s credit history to people’s age and gender. The problem with this, aside from the collection of personal data, is the fact that the CFPB has not protected this personal information in regards to security protocol.
A recent GAO report found that “CFPB lacks written procedures…for a number of processes, including data intake and information security risk assessments”. Such bulk data collection by the CFPB has become a major issue following massive security breaches at the Office of Personnel Management and the IRS.
To echo Senator Dodd’s ironic sentiments about Dodd-Frank, the law is increasingly becoming the epitome of the rule of unintended consequences.