Dodd-Frank takes the prize for political mendacity.
Beware the politician who claims that he has a surefire piece of legislation that will give you the relief you need. Be especially wary of any politician who promises that a piece of legislation will pass on some sort of “cost-savings” to consumers. Legislation, and the new regulations that accompany it, are costs in and of themselves. Very rarely do such new rules provide savings, and invariably, those savings are swallowed up by the costs associated with implementing the new rules themselves.
One of the most egregious examples was the Affordable Care Act. Congress promised that the ACA would lower health insurance prices, and those savings would be passed on to consumers. Neither happened — and consumers struggle with ever-increasing health care costs.
Far more egregious, though, is Dodd-Frank, passed in the wake of 2008’s financial meltdown, and promising a host of benefits to the American people, but instead delivering crushing mandates, massive bureaucracies, and consumer choices severely hampered. Its programs have added billions to the federal budget, thousands of pages of new federal regulations, and spawned legions of new bureaucrats at the Consumer Financial Protection Bureau — many of whom seem to exist away from the watchful eye of congressional oversight.
George Mason University professor Todd Zywicki had this to say about the CFPB in testimony before the House Financial Services Committee last year:
[The CFPB] is invested with extraordinarily broad powers to regulate virtually every consumer credit product in America under the vague charge to prevent “unfair, deceptive, and abusive” terms and practices. At the same time, this vast power is vested in an agency with an unprecedented lack of democratic accountability. Under the statute, the president can nominate the director, but once confirmed the director can be removed only “for cause.” Furthermore, the CFPB is outside Congress’s appropriations power, and is authorized to spend hundreds of millions of taxpayer dollars every year with no accountability to the American people.
One would hope that with these broad powers, some benefit to consumers might have materialized. But little has, if any. Worse, consumers have been directly harmed in the wake of Dodd-Frank! Access to banking products is a key indicator of financial stability, but in the years since Dodd-Frank’s passage, an increasing number of Americans are finding themselves shut out of basic banking products.
Take free checking accounts — something enormously helpful to millions of Americans, especially those just starting out in the working world. The law pushed even the most-basic of bank accounts out of the grasp of millions of low-income and young Americans — leaving them “unbanked” and forced to use more-expensive non-bank services for things like cashing paychecks.
Part and parcel of this was the push in Dodd-Frank to regulate something called “interchange fees” — the fee that, say, a store pays to a banking institution in order to allow for credit card transactions. Some businesses, especially smaller businesses, had voiced concerns that they were being forced to accept these fees as a “take it or leave it” proposition, without the ability to negotiate in the same way as larger, nationwide businesses.
One of the stated benefits of regulating these fees was that businesses would pass along the savings to consumers. Only it didn’t happen that way, for a variety of economic reasons.
In other words, in effect, consumers have paid twice — first, by not recouping any of the promised savings, and second, by having other fees increase, financial products priced out of their grasp, and other products simply no longer made available to them!
If history has shown us anything, it is that greater levels of regulation lead to fewer consumer choices in the marketplace. Worse, when massive levels of regulation lead to the collapse of a vital industry sector, the government solutions that backfill the needed consumer product are invariably awful.
It is in the areas of the economy where the shackles of government regulation are removed that we see a real renaissance in innovation — think of how the so-called “disruptive technologies” like Uber have transformed the way the public moves, or how the “app economy” has changed the way people interact or do business with one another.
The same holds true with financial institutions. We need to let the free market help these financial institutions figure out the best opportunities to help individual consumers — to provide them with the products that they need, at the lowest cost, with the best services. Competition is the only force that drives this. It is only through those forces that retailers will get the best “swipe” fees, and consumers will finally get those savings the politicians promised them.
What we don’t need is more of the “same old-same old” — politicians lying about promised relief, when in fact their policies hurt those they claim they are helping!
The President and Vice President, on their way to signing Dodd-Frank, July 2010 (Wikimedia Commons)