CFPB / Regulation

How Small Programs Hidden in Dodd Frank are Costing Americans Big Money

More than five years following the passage of The Dodd-Frank Wall Street Reform and Protection Act (Dodd-Frank), the question of necessity of such an extraordinarily large and overbearing act persists. This enormous document was introduced to address the issues existing in the financial system, specifically to prevent another financial crisis, but it appears to have created more problems than it has solved. Research from the American Action Forum (AAF) reveals that Dodd-Frank has imposed more than $24 billion in final rule costs and 61 million burden paperwork hours since its implementation. With robust regulations and costly initiatives, opponents of Dodd-Frank are frustrated with the government intervention and eager to eradicate the act. Abolishing this act would have positive effects on the financial market and benefit consumers overall.

Several new government agencies were created with the establishment of Dodd-Frank, including the Consumer Financial Protection Bureau (CFPB). This taxpayer-funded agency is responsible for preventing predatory mortgage lending and making it easier for consumers to understand terms of mortgages prior to the finalization of paperwork. Ideally, consumers are better off and financial brokers are held accountable for their actions. Unfortunately things are not panning out as predicted, and this costly agency is only adding confusing programs, rules and regulations. One initiative of the CFPB is the Civil Penalty Fund. Money collected from a person or company who violates a federal consumer protection law is deposited into this fund. People who were harmed by the illegal actions that incurred civil penalties are then in turn given the amount of money they lost (depending on if any compensation came from elsewhere). Typically funds deposited or withdrawn do not come in equal amounts or at the same time, so the Bureau reserves the right to use leftover money in the Fund for consumer education and financial literacy programs.

Exterior of the Consumer Financial Protection Bureau, Washington, DC USA

Exterior of the Consumer Financial Protection Bureau, Washington, DC USA via Ted Eytan on flickr

In the year 2013, 13.3 million dollars was designated for these financial literacy programs. The criteria for these programs are extensive: programs are required to last 1-3 years, include specific outcome targets and enhance opportunities for asset building. Also, the “Effectiveness data that is generated from the work will be made available to others in the financial education community.” Any organization receiving funding from the CFPB is to utilize these guidelines in the implementation of the programs. 60 different non-profit organizations receive funding for these financial literacy programs, each one was granted approximately $221,000 (if divided equally). That is a lot of money that nobody is necessarily keeping tabs on.

To address this, I took action and with a little bit of investigation was able to contact almost every organization receiving money from the CFPB. First, I scanned each organization’s website, finding little to no information online regarding a financial literacy program in place. There were definitely no published results about “effectiveness data.” I then proceeded to call organizations that provided a public telephone number to inquire about the programs. While some organizations had a “financial coach” on staff, others were completely unfamiliar with the idea of a financial literacy program. Emailing the remaining organizations proved to be more successful, but still, several organizations admitted to not having any type of financial literacy program in place. Of the 45 organizations I was able to correspond with, 13 admitted to having no program in place. Others mostly spoke of programs that specifically assist veterans with their finances, while a few were more vague about their offered programs, claiming to occasionally offer seminars about personal finance.

This does not sound like the extensive criteria the CFPB established with the program, especially since the budget for these programs is upwards of $200,000. This is just one example of how CFPB programs and agencies are not being held accountable for their spending. The Civil Penalty Fund is a relatively small portion of the CFPB, but if no one can keep track of these $13 million, what does that mean for the rest of the programs? Who is keeping track of the other agencies and regulations? In order to successfully reverse the effects Dodd-Frank, and the Consumer Financial Protection Bureau, these programs need more accountability, or better yet, need to be repealed immediately.