A few weeks ago, I warned that one of the problems with the Administration’s proposed Consumer Financial Protection Agency is that it could easily be captured by interest groups who would use its powers to exploit the general public for their own benefit:
[Voter] political ignorance opens the door to interest group “capture” of the CFPA or other agencies that will implement paternalistic regulations. Such regulations will necessarily be complex and difficult to understand. Rationally ignorant voters are unlikely to follow them closely enough to be able to tell the difference between effective regulations and harmful ones. As a result, it will be easy for interest groups and government officials to enact regulations that benefit politically influential businesses as the expense of the public under the guise of consumer protection. We have seen this pattern time and again with other regulatory agencies, such as those engaged in railroad, airline, public utility, and trucking regulation.There is no reason to believe that the new paternalistic regulatory agencies will be any different. Indeed, agencies implement paternalistic financial regulations are likely to be even more vulnerable to capture because of the complexity of the financial system (which makes political monitoring by ignorant voters even more difficult), and the presence of numerous powerful interest groups who have an incentive to do the capturing. Banks, credit card companies, real estate developers, and many others will no doubt lobby hard to capture the CFPA once it gets established.
Recently, Democratic Representative Maxine Waters added an amendment to the bill establishing the CFPA that would add five seats to its powerful Oversight Board for “experts in the fields of consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgage loans.” All sorts of interest group representatives could easily get on the board under this amendment. For example, pretty much any bank or credit card company official could claim to have expertise in the “fields” of “consumer protection” or “fair lending.” Similarly, many banks can easily claim to “primarily serve underserved communities.” Finally, interest group representatives could pose as “representatives of communities that have been significantly impacted by higher-priced mortgage loans.” For example, lenders and real estate developers located in such areas would surely qualify; after all, they live in the community too. The majority of the board will still be made up of various federal government officials. But these officials are far from immune from interest group pressure themselves, and of course such lobbying will be facilitated by the fact that several interest group representatives will likely be sitting on the board itself.
Conservative columnist Byron York, author of the linked article, focuses mostly on the fact that Waters’ amendment cleverly forestalled a Republican effort to keep ACORN from getting representatives on the board. ACORN, however, is just one of many groups that could potentially get seats on the Oversight Board. Indeed, ACORN’s notoriety makes it less dangerous than many of the other groups that could potentially capture the CFPA. Any effort to put ACORN representatives on the board would likely result in lots of negative publicity; for that reason, I doubt that the administration would let it happen. On the other hand, rationally ignorant voters are likely to overlook the presence of representatives from other, equally pernicious but less well-known groups.
mariner says:
Of course, the administration would simply allow the appointment of someone whose ACORN affiliation is unknown or obscured.
Quote
November 1, 2009, 5:25 pmIlya Somin says:
Of course, the administration would simply allow the appointment of someone whose ACORN affiliation is unknown or obscured.
That’s certainly possible. But Fox and other conservative media would try hard to ferret out any such ACORN affiliation, since it would be a great ratings boost for them. On the other hand, affiliation with a less-notorious group is less likely to attract their attention, or that of voters.
Quote
November 1, 2009, 5:58 pmricky says:
“Underserved” is obviously a typo. I’m sure she meant “undeserving”.
Quote
November 1, 2009, 6:28 pmgeokstr says:
Many conservatives knew and warned that all the cheering when the Congress, with huge majorities including most of the Democrats, voted to supposedly “defund” ACORN, that this was just a chimera, nothing more than a smokescreen to give their party cover after all the negative publicity ACORN got when the “watchdog media” got scooped by two kids and a video camera. And given the slime that Democratic party adjunct ACORN and its slippery tentacles like the SEIU were really into for decades, this little sideshow was actually more akin to charging Capone with income tax evasion instead of the murders and other massive criminal activity he had also been guilty of.
This is just one of many, many more ways that ACORN or similar organizations with exactly the same goals and tactics will be slipped into the power structure by the Democrats. This is the hydra of the left, and will not be defeated, defanged or defunded even if the Republicans sweep everything in 2010 and 2012.
Quote
November 1, 2009, 6:33 pmMnZ says:
Echoing Geokstr. I personally think the most pernicious trait of the Democratic party is their intentional structuring of programs and initiatives to entrench the political power of themselves and their supporters. Given the option between a more efficient public policy with little political entrenching and an inefficient public policy with a great deal of entrenching, Democrats always seem to choose the latter. Obviously, Republicans do it too, but Democrats are just more creative about the guises under which they do it. Moreover, Democrats are so convinced of their righteousness — that their political entrenching is viewed as public benefit.
Quote
November 1, 2009, 7:44 pmArrowSmith says:
As if Republicans didn’t do the same thing from 2001–2006. Both political parties stand for only one thing — getting power and increasing it for themselves. The American people continue to endorse this kabuki theater.
Quote
November 1, 2009, 8:53 pmDYSPEPSIA GENERATION » Blog Archive » Interest Group Capture of the Proposed Consumer Financial Protection Agency says:
[...] Read it. Recently, Democratic Representative Maxine Waters added an amendment to the bill establishing the CFPA that would add five seats to its powerful Oversight Board for “experts in the fields of consumer protection, fair lending and civil rights, representatives of depository institutions that primarily serve underserved communities, or representatives of communities that have been significantly impacted by higher-priced mortgage loans.” All sorts of interest group representatives could easily get on the board under this amendment. For example, pretty much any bank or credit card company official could claim to have expertise in the “fields” of “consumer protection” or “fair lending.” Similarly, many banks can easily claim to “primarily serve underserved communities.” Finally, interest group representatives could pose as “representatives of communities that have been significantly impacted by higher-priced mortgage loans.” For example, lenders and real estate developers located in such areas would surely qualify; after all, they live in the community too. The majority of the board will still be made up of various federal government officials. But these officials are far from immune from interest group pressure, and of course that lobbying will be facilitated by the fact that several interest group representatives will now be sitting on the board itself. [...]
rpt says:
I understand the ideological basis for this post. Unfortunately, those who believe that ACORN is a more of a risk to the financial system and have a greater chance of regulatory capture than Goldman (why would we tell the investors we are betting against them) Sachs or Citibank or B of A are simply clueless about the way things are in the real world. Argue about ideology but don’t pretend it has any meaning.
Quote
November 2, 2009, 12:10 amTweets that mention The Volokh Conspiracy » Blog Archive » Interest Group Capture of the Proposed Consumer Financial Protection Agency -- Topsy.com says:
[...] This post was mentioned on Twitter by Leanne Thomas and Spency Call, Matthew Lloyd. Matthew Lloyd said: The Volokh Conspiracy » Blog Archive » Interest Group Capture of ... http://bit.ly/2utxN2 [...]
Dotar Sojat says:
I still don’t understand what the CFPA is actually supposed to do. I’m just a working stiff, but I don’t see what it is supposed to mean to me. All I see is a vehicle for extracting things from the financial sector for someone’s benefit other than mine or those like me.
Quote
November 2, 2009, 9:55 am