by Jeff Sovern
Yesterday I posted about Senator Elizabeth Warren's takedown of Leonard Chanin, formerly of the Fed and the CFPB, now of MoFo, at a Senate Banking Committee hearing. I have since finished listening to the hearing and wanted to say a few more things.
First, at the conclusion of the hearing. the Committee's chair, Republican Senator Richard Shelby, praised Mr. Chanin for his service to the country and said that he wished Mr. Chanin still worked for the government. Quite a contrast with Senator Warren's view that Mr. Chanin "played a key role in blowing up the economy."
Senator Shelby and several others at the hearing spoke of how they saw cost-benefit analysis as critical to effective regulation. One point that speakers made was that a possible cost of regulations is that they might reduce access to credit. It was almost as if they didn't know that the Dodd-Frank Act (which also came in for criticism) commands the CFPB to consider cost-benefit analysis in formulating regulations, and that as part of doing so, the Bureau has to take into account any possible reduction in access to credit. See 12 U.S.C. § 5512(b)(2). Nor did Dodd-Frank's injunction to the CFPB not to declare acts unfair unless the acts cause substantial injury which are not outweighed by corresponding benefits draw praise. See 12 U.S.C. § 5531(c).
So why the focus on cost-benefit analysis? CBA is often a pretext for opposition to regulation. It sounds neutral–who could be against comparing the costs and benefits of a law?–but can be used to derail consumer protection laws. At best it delays laws, sometimes for lengthy periods, during which consumers can be taken advantage of. But it can also serve to block needed protections, by, for example, giving industry the ability to argue that a regulator's CBA was insufficient and so a regulation should be invalidated. See Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011). Part of the problem is that it is often difficult to value benefits. How are regulators to value giving consumers the ability to determine their mortgage costs, for example, as the TRID rule is intended to do? Or the ability to prevent the disclosure of information about their financial transactions, as Gramm-Leach-Bliley is supposed to accomplish? CBA may be a great idea in theory, but when someone calls for its use, ask whether they really mean that they oppose the proposal under discussion. I have written more about CBA here.