Consumer Financial Bureau’s restructure is a step in the right direction

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Earlier this month, the Bureau of Consumer Financial Protection (CFPB) announced the creation of an Office of Cost Benefit Analysis. Taking a look inside how the organization is structured can reveal quite a bit.

The office, housed within the Office of the Director, was inspired by the Federal Trade Commission’s Bureau of Economics, the agency previously tasked with enforcing many of the rules currently enforced by the bureau.

{mosads}The bureau is required by law to consider “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services” as it adopts new rules. This language is not merely rhetorical, but serves as a binding constraint in the agency’s operations during judicial review.


While the bureau previously had an Office of Research to deal with such matters, it clearly did not place a high priority on that department’s work. From a structural perspective, consider that the office was led by an “assistant director,” a lower rank than the associate directors responsible for enforcement and for regulation.

By contrast, at regulatory agencies like the FTC and the Securities and Exchange Commission, the head of economic analysis stands on the same level as the enforcement and regulation chiefs. The FTC’s chief economist plays a frontline role in enforcement actions, and stands on the same level as the attorneys when deciding which cases to bring.

While this may sound like inside baseball, structure matters. Having the chief economist report directly to the agency head is the only way to ensure that economic analysis is given adequate weight versus legal analysis when adopting rules and setting enforcement priorities. 

Sen. Elizabeth Warren (D-Mass.) has criticized the move, arguing that is politicizes the office. That perspective is misguided.

Again, the other agencies’ chief economists report directly to their commissions. If the CFPB’s single-director structure is the problem, Warren and others who designed it have only themselves to blame for not adopting a more deliberative bipartisan commission.

Speaking as a member of both professions, it’s healthy for economists to stand on par with lawyers in regulatory agencies. The professional norms of the economics profession are very different from the legal profession. Lawyers who are driven to advocate for their agencies’ jurisdiction and power may lose focus on the bigger picture of how their actions impact consumers.

By contrast, the professional norms of the economics profession, grounded in the scientific method and peer review, provide more balance to agency deliberations. The chief economist is more likely to push back against the agency attorneys when their own credibility among their peers is put into jeopardy.

Furthermore, the operative statutes of agencies like the bureau mandate economic analysis. It should not be a mere afterthought, but instead should inform decisions about regulatory strategy directly at the director level. Moreover, demonstrating proper and rigorous economic analysis can help the agency defend against subsequent judicial review of its actions.

The bureau has not always done a good job of listening to its own economic experts. For example, its study of a ban on mandatory arbitration observed that consumers often recover more money, faster, in arbitration than in traditional class actions. And yet the bureau ignored that guidance in pressing forward a ban on arbitration.

An elevated role for the chief economist, reporting directly to the head of the agency, can maintain a helpful balance in agency rulemaking and enforcement priorities. This balance is particularly important for a young agency like the Bureau of Consumer Financial Protection.

The bureau has been criticized for politicizing its activities, abusing its authority, exceeding its statutory authority, and even for a failure to catch clear frauds in time to mitigate damage to consumers. A more robust and authoritative economic analysis function at the agency can minimize the potential for similar abuses in the future.

J.W. Verret is an associate professor at the Antonin Scalia Law School at George Mason University and a senior scholar with the Mercatus Center.

Tags CFPB Consumer Financial Protection Bureau Elizabeth Warren JW Verret

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