Put ‘regulation by enforcement’ where it belongs: The trash
In a welcome announcement, Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney declared an end to “regulation by enforcement.” For nearly a decade, the bureau has had free rein to enforce all sorts of consumer protection laws. It has wielded that power.
In one example, then-CFPB Director Richard Cordray overruled a $6.4 million fine against a mortgage lender and slapped a fine of $109 million in its place.
But the director’s unilateral decision to impose over $100 million in additional sanctions wasn’t the only disturbing thing about the bureau’s decision. The decision to go after the mortgage lender in the first place underscores the dangers of regulation by enforcement.
Most of us expect to have some notice of whether our actions are illegal. Police officers do not hand out traffic tickets based on whims about whether someone is driving too fast. Rather, motorists frequently see signs notifying them of the speed limit.
You’d think you’d see something similar when the penalties are a million times greater. But not so. In levying the fine, CFPB purported to enforce a housing law from the Nixon administration. But that law didn’t say that the lender’s reinsurance agreements were illegal. It instead prohibited lenders from accepting a “thing of value” in any real estate deal involving a mortgage loan.
But what are things of value? Money? Publicity? Baseball cards? Under the guise of enforcing this vague provision, the CFPB fined the mortgage lender over $100 million for participating in an insurance program.
Worse, the Department of Housing and Urban Development, which had enforced the housing law before Congress created the CFPB in 2010, had long stated that the insurance program at issue was legal. Lenders relied on those statements.