Opinion: Let’s Not Miss the Forest for the Trees When It Comes to Healthy Banking Regulation

I own coconut trees. Five of them in fact. 

They came with our new house in Florida and at first I thought they were the coolest thing. 

That was until I got an ominous note from our HOA. Apparently I was about to get a big fine unless I cut down the coconuts. Stat. I soon discovered that as great as I thought they were, coconuts are a huge hazard if they hang over the sidewalk because they can fall and seriously injure people. We had violated our HOA’s regulations. 

The price for cutting down said coconuts? $100 each for five trees. We grudgingly paid our $500 bill. 

While I wasn’t happy about the cost, I was happy that someone was keeping an eye on things and was out there protecting the community. Also keeping my family from getting sued by one of our new neighbors. 

So here’s the thing. We need an HOA for money, AKA financial regulation. It protects not just consumers but also our financial institutions, by putting up guardrails and creating a framework of expectations. 

Russell Vought, the new acting director of the CFPB, has stopped nearly all work and closed the bureau’s headquarters this week.

That seems to be what the thinking was when the Consumer Financial Protection Bureau was established in 2011, in large part as a reaction to the financial crisis of 2007 and 2008 and the Great Recession. The idea was to establish an independent agency within the Federal Reserve to be a consumer watchdog. 

Note the word independent. That is where things get problematic. Because the CFPB is independent, it doesn’t rely on Congress for funding. That comes directly from the Fed, and within some very generous limits the CFPB has never even come close to hitting, the Fed is obligated to give it the money it requests.

Basically the Consumer Financial Protection Bureau’s budget is whatever it needs. The idea behind that is that it keeps politics out of the mix. But critics say there isn’t accountability and transparency as to where the money goes. 

What critics do see is a lot of regulation and an expanding agency.

Enter President Trump. 

Soon after his new Treasury Secretary Scott Bessent was sworn in, CFPB head Rohit Chopra was out, with Bessent becoming the active head of the agency until Trump replaced him with Russell Vought on Friday. All activities were frozen. 

Defenders of the agency are aghast. They warn deregulation can lead to bad behavior by financial institutions and in turn lead to another financial crisis. They complain it will favor the bigger, better capitalized banks and hurt competition from smaller financial institutions.

Most of all they are alarmed that they say it guts protection for consumers who are often taken advantage of due to, among other things, a lack of financial education – one of the key things the CFPB says it provides. 

Those concerns are legit. But it doesn’t excuse the fact that regulation must be done in a way that also addresses critics’ valid concerns about the lack of accountability, fiscal efficiency, and transparency. Both can be true.

Banking regulation has been a hot topic lately with many analysts expecting fewer rules in banking under the new administration.

It should also be acknowledged that there is such a thing as going too far when it comes to regulation. There is a healthy balance that can allow our financial institutions to thrive. We want banks to be healthy.

Without as many restrictions, banks can be more generous with their lending standards, allowing more people to, for example, qualify for a mortgage. Banks can also more easily lend to small businesses which in turn can boost employment by hiring more people as their businesses have the capital to grow.

Let’s also not forget that regulation can be a huge financial burden for banks. Profitable banks don’t only benefit their employees and investors, but also better serve as the financial engine to our economy. 

Many government agencies could use more financial oversight and would benefit from some thoughtful and intentional right-sizing. Just like the private sector does quite often. Sometimes it is hard to see that from the inside.

CFPB employees are good people doing what they are asked to do – stand up for the consumer. They are real people with families to support, so having to make these efficiency decisions from the inside is full of emotion, amplified by the true sense of purpose felt by the kind of people drawn to dedicate themselves to the work of the CFPB. 

The Trump administration’s approach is dramatic and meant to get attention. The folks in charge at the CFPB should not be surprised. The new administration is doing exactly what it said it would.