Jun 8, 2018

BCFP's Office of Cost-Benefit Analysis Can Be Good for Consumers

J. W. Verret Senior Affiliated Scholar, Thomas Ressler Outreach Associate

The Bureau of Consumer Financial Protection, under the leadership of Acting Director Mick Mulvaney, recently moved to create an Office of Cost-Benefit Analysis, based on the Federal Trade Commission’s Bureau of Economics. As Morning Consult’s Ryan Rainey put it, "the office will review the economic impacts of regulatory issues, as well as BCFP enforcement and supervision activities." Improving economic analysis at federal financial regulators is nothing new, and was most recently explored a few years ago in the context of reform of the Securities and Exchange Commission.

If properly structured, this is good for consumers as well as companies. At a minimum, we expect the office will be able to determine whether the projected economic benefits to consumers of a given rule or regulation outweigh the likely costs to consumers associated with implementing and enforcing it.

Perhaps Mulvaney was inspired in part by legislation introduced during the 114th Congress, which would establish "an Office of Economic Analysis (OEA) at the BCFP to review and assess proposed guidance documents, orders, rules and regulations. In particular, the OEA would analyze how the aforementioned actions at the BCFP would affect consumer choice, price, and access to financial products. These findings would then be published in the Federal Register enabling the public to comment on the merits or faults of the proposed action. If the director disagrees with the findings, they must submit a notice of disagreement that accompanies the promulgation of any BCFP action. Additionally, the OEA would also be required to review each action by the BCFP after 1, 2, 5, and 10 years of implementation so that the American people, Congress and the BCFP can evaluate effectiveness."

Adding such a layer of bureaucracy in this context might be a good thing for consumers because it could focus a regulatory process that can get carried away by the latest political current – the compliance costs of which inevitably are passed onto consumers – and return it to a more measured, deliberate, and thoughtful approach. Also, the very intention behind creating bureaucratic rules is to supplant the possibility of government officials arbitrarily abusing their power by instituting an objective, impersonal rule, regulation, or procedure that is uniformly implemented and applied.

If nothing else, this kind of predictability can keep costs from swinging wildly and unexpectedly.

Finally, as Nobel Laureate F.A. Hayek once famously noted, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design,” and that includes regulation. One can hope that an Office of Cost-Benefit Analysis can provide much-needed insight at the Bureau.

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