Recently Dennis McCuistion was featured in a Dallas Morning News article. Follow this link to view the article titled, “Fix, don’t defang, consumer bureau”
Dallas Congressman Jeb Hensarling makes an excellent case for getting rid of Dodd-Frank or at least dismantling a large chunk of it, including the Consumer Financial Protection Bureau.
The 2,319-page Dodd-Frank Act was passed in July 2010. In the last seven years, only 80 percent of it has been implemented because it is so complex and costly.
There were some good things in Dodd-Frank, including a provision requiring publicly traded corporations to ask their shareholders to vote on the level of executive pay for their top executives. The legislation attempted to get rid of too-big-to-fail banks, but there is consensus that it did not do that.
The most contentious part of the legislation created the Consumer Financial Protection Bureau.
The consumer agency has rightfully sued many financial institutions and recovered several billions of dollars, some of which went to individuals, but much of which went to the government or to attorneys. It has wrongfully sued many others, leading opponents to say that the agency is in fact the prosecutor, the judge and the jury. Further, the way the agency was set up lends itself to that conclusion.
The Consumer Financial Protection Bureau has only one person in charge: Richard Cordray. This is different from other agencies, which typically have boards. The agency is funded by a percentage of the revenues generated by the Federal Reserve System, Cordray is not accountable to anyone, and the budget is not overseen by the executive branch or Congress.
All these are unique in the federal government. The structure has since been found unconstitutional, and the case will be back in court again soon. The Dodd-Frank Act was to be the solution to the financial crisis and the prevention of future ones, yet the legislation totally overlooked the primary cause of the financial crisis: bad loans made at the urging of the federal government. Half of the mortgages in America were subprime when the crisis occurred.
Yes, big banks participated in this by lying about the mortgages they were putting in their securitization packages, and, yes, they were fined billions of dollars instead of putting the bankers in jail. The Department of Justice failed to follow up on referrals for indictment recommended by the Financial Crisis Inquiry Commission, and evidence for these referrals was locked up for five years.
Last year, I had the pleasure of leading a series of meetings and television programs on the financial crisis and whether Dodd-Frank would actually solve the problems. The conclusion of whistleblowers, economists, bankers and other experts was that the government did not hold itself accountable, and, no, Dodd-Frank would not solve the problems.
The solution to the problems in the banking industry is to require banks to hold more capital, and that is happening. More regulations have never prevented the kind of problems that we had in 2008, and they will not do so in the future. What they have done is help push 2,000 community banks to sell or close since 2008, thus preventing a more robust recovery.
So, what should be done? Hensarling will soon introduce a new version of the Financial Choice Act. And last month, my congressman, John Ratcliffe of Heath, introduced H.R. 1031, a one-page bill that would totally eliminate the Consumer Financial Protection Bureau. My view is that the agency needs to be restructured with a five-person board.
President Donald Trump should fire Cordray, and the funding should be subject to congressional approval and moved from under the Federal Reserve. Honest bankers should not be subject to an agency that is clearly out of control.
Dennis McCuistion is a recovering bank CEO who teaches corporate governance and since 1990 has hosted the McCuistion television program on KERA. He wrote this column for The Dallas Morning News.