Last week, Matt Yglesias asked why the CFPA needs to be part of the financial regulatory overhaul, since it seems to be the main sticking point in the bill. (Note, it's only the main sticking point right now -- if a compromise comes through, there will be another sticking point.) Felix Salmon answers him ably:
My problem with this idea is that it's tantamount to an admission that a CFPA is not a necessary and intrinsic part of the comprehensive regulatory reform this country needs. If put into a bill on its own, it would be easy not only for Republicans but also Democrats to start waxing fiscally responsible about expansion of government and increased bureaucracy.
Yglesias says that “a CFPA isn't going to regulate systemic risk”, which is true, narrowly speaking — but which is also false, broadly speaking, since a CFPA would actually have been more likely to notice and crack down on the kind of lending which was most systemically damaging than a systemic-risk regulator might have been.
I'd add one other thing: Yglesias compares the CFPA to the public option, which I've done for different reasons. But health-care reform without a public option won't mean access isn't expanded -- there are still subsidies to help cover the uninsured. Nor does the loss of a public option mean that costs won't be lowered -- there are still exchanges, and comparative effectiveness research, and the excise tax, and other cost-control mechanisms.
But if the CFPA isn't included in financial regulatory reform, then -- this is important -- consumer lending will not improve. This is not a problem that can be solved by legislation, and ineffectual federal regulators preempting state authorities isn't going to go away. If real consumer protection isn't in this bill, it will be a major loss.
-- TIm Fernholz
