Expect More Bad News This Year From the CFPB

The Consumer Financial Protection Bureau, created by the 2010 Dodd-Frank Act, may be a new kid in town, but it is working hard to establish itself as one of the most ambitious and intrusive agencies in the federal government. As busy as it was in 2015-and it was nothing if not busy-we can expect more in the year ahead. That is not a good thing.

Noteworthy moves by the agency last year included: making it harder for the working poor to handle a cash-crunch by creating new restrictions on payday lending; preparing to further enrich class-action lawyers with its plan to ban cost-saving arbitration provisions in consumer contracts; and lastly, using dubious data to charge banks with discriminatory lending.

This last item is perhaps the most remarkable example of the CFPB's costly mixture of ineptitude and over-reach. The Wall Street Journal reported that to identify examples of discriminatory lending, the agency and Justice Department applied "an algorithm that assigns probabilities to whether borrowers are minorities based on their last names and locations."

The CFPB's reliance on bad information means that Ally Financial must pay millions of dollars to loan recipients who may not have been discriminated against at all. The Journal tracked down a white man in Alabama who received $367 from Ally because the CFPB saw his last name and assumed he was a minority. The pursuit of Ally resulted in a more fundamental problem - faulty data was used to pursue charges and eventually wrest a financial settlement from a financial institution.

So what can we expect in the new year? A good place to look for ideas is the agency's fiscal year report for 2015-16. The document, published last February, is generally vague but includes some specifics about the CFPB planned growth. Its FY 2014 budget was $497,895,311; for FY 2016, it's $605,519,643. That includes a $36 million increase in its Supervision, Enforcement, and Fair Lending program, and more than $21.4 million increase in its operations budget. More money to spend means more mischief to make.

The document also lists some of the agency's aspirations, including a 75% success rate in court cases. Only a government agency would boast of failing 25% of the time with a budget of $605.5 million, but that is precisely what the CFPB does, explaining that its target rate "ensures that the CFPB . . . [is] pursuing complex and challenging actions when appropriate, even when success is not assured."

Nonsense. Taken alone, the metric tells us nothing. It could mean that the CFPB has exceptional lawyers trying difficult cases or bad lawyers trying easy ones. It could mean that the agency's strategies are often at odds with American law. It's a weak rationalization for an arbitrary goal.

Faith in this "75% success" metric is a parallel for what the CFPB likes to do - put on blinders in the pursuit of goals.

The document also includes what amounts to a guarantee of mission creep: "Industry structure is always changing, and therefore, so too will the number of institutions that fall under the CFPB's supervisory authority." What are the odds that this change will mean withdrawing an institution from the agency's "supervisory authority"?

2016 will be another busy year for CFPB. And while the last year of a president's second term is a time for many experienced aides and officials to move on to private-sector jobs, CFPB Director Richard Cordray's tenure does not expire until the summer of 2018. That means whoever wins the upcoming presidential election, the CFPB will remain on its current course.