by Adam C. Smith, Todd Zywicki
Mercatus Center
March 11, 2014
Working Paper Series
The Consumer Financial Protection Bureau (CFPB) is one of the most powerful and least accountable regulatory agencies in American history. Immune from budgetary oversight by Congress and headed by a single director irremovable except under special circumstances, the agency wields unconstrained, vague powers to regulate virtually every American consumer and small business credit product. The CFPB has justified its ongoing intervention into financial credit markets based on a prior belief, founded on behavioral economics research, in the inability of consumers to competently weigh their decisions. We show that policy departs from the prescriptions of “behavioral law and economics” largely due to the context of public choice. The CFPB is best placed as a resource for guiding consumers to accurate information on financial products. As it deviates from this function, it ironically loses control over the choice context consumers face, forcing consumers to pursue even riskier options.



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