Originally published at americanbanker.com on March 15, 2024.

In a bold move that may reshape the U.S. consumer finance landscape, Rohit Chopra’s Consumer Financial Protection Bureau has issued Consumer Financial Protection Circular 2024-01, marking a significant overreach into how Americans access financial services. This circular scrutinizes digital intermediaries, such as comparison-shopping tools and lead generators, dictating how they should operate and penalizing their business models. This step hints at a future where the federal government might not just regulate but effectively dominate the consumer lending sector.

The notion that a government agency can more effectively determine the financial products that best serve consumers than the free market itself is radically misguided.

At its heart, this directive places digital intermediaries under intense scrutiny, particularly for prioritizing financial products based on compensation: With the current financial services model, lead generators create a pipeline of potential customers, and these would-be borrowers are “sold” to the highest-bidding lender. At issue is Chopra’s arbitrary determination that this model is allegedly not conducive to the consumer’s best interests.

Under the CFPB’s proposition, the approach risks transforming the federal government into the ultimate decision-maker in consumer banking, molding the CFPB to compete directly with the private sector. Make no mistake: The CFPB is positioning itself to inevitably take the place of the private sector entirely. The federal government would effectively control the entire market by controlling the flow of customers. This unprecedented move could fundamentally alter the dynamics of consumer finance, sidelining the principles of free market competition and stifling the innovation that drives the development of new and effective financial solutions.

Moreover, the CFPB’s expansive definition of “abusive practices” within this circular grants the agency far-reaching power to intervene in the operations of these platforms. Such regulatory overreach is poised to induce a chilling effect across the sector, stifling the innovation and competition that benefit consumers.

Brass tacks: Chopra is explicitly targeting certain financial products or services by attacking the consumer pipeline. This leads to digital platforms scaling back their offerings or becoming overly cautious to avoid regulatory repercussions. The compliance burden and decreased competition force businesses to adjust their pricing models, paradoxically limiting consumer choice and inflating costs. That’s not good for business, and it’s not good for the consumer.

There is also reason to doubt the CFPB’s ability to protect the data the new circular would require companies to report. Last year, when I attempted to file a complaint against the CFPB for a significant data breach — where the personal information of over 250,000 consumers was compromised — my efforts revealed a convoluted and ineffective process, highlighting a glaring accountability gap within the bureau.

This incident not only underscores the CFPB’s challenges in safeguarding sensitive information but also raises serious concerns about its capability to manage the vast amounts of data it seeks to regulate. If the agency struggles to protect consumer data, how can it be entrusted with an even broader mandate to oversee and regulate digital financial intermediaries?

The notion that a government agency can more effectively determine the financial products that best serve consumers than the free market itself is radically misguided. It undermines the consumer’s ability to make informed decisions and the market’s capacity to self-regulate through competition and innovation. By positioning itself as the gatekeeper of consumer financial transactions, the CFPB risks pushing us toward a de facto nationalization of consumer finance, which serves neither the market’s nor the consumer’s best interests.

The CFPB’s latest move represents regulatory overreach and a direct assault on the American economy’s free market principles. It threatens to solidify government control over consumer lending, dampening competition and innovation to the detriment of the consumers it aims to protect. We must reconsider this trajectory and advocate for policies that preserve market dynamics and foster an environment where innovation and consumer choice are paramount.

Originally published at americanbanker.com on March 15, 2024.

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