Topic: Regulatory Studies

The CFPB Should Learn That No Means No

Despite professing a desire for “financial inclusion,” usually understood as better access to financial products for lower income people, the Consumer Financial Protection Bureau (CFPB) has taken aim at a product used extensively by low- and moderate income Americans: the short-term, low value loans known as “payday” loans.  What is even more striking about the proposed rule, however, is the fact that it works as an end-run around an express limit on the CFPB’s power.  The CFPB has spent its short life pushing the bounds of its authority in numerous directions, going so far as to incur a slap from a federal court when it trod on the toes of another agency.  The CFPB could be excused for thinking that at least some members of Congress desired such expansion, given the broad and amorphous authority the Dodd-Frank Act grants the new agency.  But it is hard to justify evading an express prohibition.

Although the CFPB is given the authority to proscribe unfair, deceptive, and abusive practices, the Dodd-Frank Act explicitly withholds from the CFPB the authority to “establish a usury limit.”  The proposed rule does not set a rate cap, but it does make lending at any rate above 36 percent so onerous as to be infeasible.  In fact, it is not clear that it would be even be possible to comply with the rule.

On Friday, I submitted a letter to the CFPB, expressing concern over the agency’s authority to enact the rule as proposed.  In particular, the letter notes that the underwriting process required for loans with an effective annual interest rate higher than 36 percent are not only onerous but require the lender to make determinations that may be impossible to make.  For example, under the proposed rule a lender would be required to “forecast a reasonable amount of basic living expenses for the consumer – expenditures (other than debt obligations and housing costs) necessary for a consumer to maintain the consumer’s health, welfare, and ability to produce income[.]”  This amount can be difficult for individuals to determine for their own households.  My husband and I have an estimate we use to help us save for an emergency, but I couldn’t swear to its accuracy given the vagaries of life with small children.  I couldn’t guess what the right number might be for any other household in my acquaintance.  If I am uncertain what my own family might need, it is difficult to see how a storefront lender could make this determination for a prospective borrower who walks in off the street.  Certainly this level of underwriting, which surpasses even what is required for most mortgages, is not cost-effective for a loan of only a few hundred dollars.

Obama’s Housing Toolkit: A Mixed Bag

Something striking happened last week: the Obama White House released its Housing Development Toolkit and Obama’s economic advisor, Jason Furman, wrote a follow-on op-ed about land use regulation’s negative consequences. While White House reports tend to be geared toward partisan political objectives, these two publications could have been written by non-partisan economists. Nevertheless, although the honest application of economic theory is welcome, libertarians will still find points of disagreement.

What’s good? The report highlights zoning policies’ influence on increasing housing prices, immobilizing workers in job deserts, creating costly uncertainty for developers, increasing inequality and racial segregation, and suppressing economic growth. These negative outcomes were attributed to “excessive barriers,” “unnecessarily slow permitting processes,” and “arbitrary or antiquated” zoning and land use regulations.

The White House even went so far as to say that “even well-intentioned land use policies” can have negative impacts. So far, so good.

What’s bad? The worst part of the report is the declaration that the President’s 2017 HUD budget includes a $300 million proposal for grants to help cities “modernize their housing regulatory approaches.” Since when does it cost $300 million to reduce regulation, which is all the “modernizing” that needs to be done?

Grow That Government!

What does it take to make a state-level Republican policymaker work to grow the power of the Obama Administration? Not much! Washington Secretary of State Kim Wyman is a case in point.

In the wake of a shooting at a Macy’s in Mount Vernon, Washington, late last month, Secretary Wyman called for Washington State to comply with the national ID program run by the U.S. Department of Homeland Security under the REAL ID Act.

Secretary Wyman’s rationale for joining the national ID is that state authorities (including, for some reason, election officials) were unable to immediately identify the citizenship status of the shooter (who turned out to be a naturalized American citizen).

Washington State has hitherto declined to embrace REAL ID, and has been one of the states most actively pushing back against the federal program. Secretary Wyman argues that adopting REAL ID would allow the state to more quickly access federal databases and records and help prevent voter fraud in Washington State elections.

Whatever a state’s need for securing their vote, that’s no reason to join the national ID system. And REAL ID is a bloated, costly, and opaque federal program. Compliance would require Washington State to share its drivers’ personal data and copies of their digitally scanned documents with departments of motor vehicles across the country through a nationwide data sharing system. This database sharing is a two way street: Secretary Wyman might be able to access other jurisdiction’s databases, but any bad actor in a DMV from California to Connecticut could access Washington State’s.

In the wake of recent DMV hacking scandals in Louisiana and elsewhere, this concern is not overblown. Because of the hacking and identity fraud risks, and the lack of any real national security benefit, adoption of REAL ID would only make Washingtonians less safe.

More Regulation Won’t Make Housing Affordable

A new Housing Policy Toolkit from the White House admits that “local barriers to housing development have intensified,” which “has reduced the ability of many housing markets to respond to growing demand.” The toolkit, however, advocates tearing down only some of the barriers, and not necessarily the ones that will work to make housing more affordable.

“Sunbelt cities with more permeable boundaries have enjoyed outsized growth by allowing sprawl to meet their need for adequate housing supply,” says the toolkit. “Space constrained cities can achieve similar gains, however, by building up with infill.” Yet this ignores the fact that there are no cities in America that are “space constrained” except as a result of government constraints. Even cities in Hawaii and tiny Rhode Island have plenty of space around them–except that government planners and regulators won’t let that space be developed.

Instead of relaxing artificial constraints on horizontal development, the toolkit advocates imposing even tighter constraints on existing development in order to force denser housing. The tools the paper supports include taxing vacant land at high rates in order to force development; “enacting high-density and multifamily zoning,” meaning minimum density zoning; using density bonuses; and allowing accessory dwelling units. All of these things serve to increase the density of existing neighborhoods, which increases congestion and–if new infrastructure must be built to serve the increased density–urban-service costs.

Urban areas with regional growth constraints suffered a housing bubble in the mid-2000s and are seeing housing prices rise again, making housing unaffordable. Source: Federal Housing Finance Agency home price index, all transactions.

Transgender Rights Can Be Vindicated Without Constitution-Bending

The debate over transgender rights has risen in prominence in recent years, with the fight over access to public restrooms and locker rooms receiving particularly heavy public attention. The legal question at the heart of the first such lawsuit to reach the Supreme Court, however, is one not of civil rights law, but of administrative law: Should courts defer to agency interpretations of their own regulations, even when those interpretations constitute major, substantive changes to public policy via informal, non-binding pronouncements?

G.G. is a transgender high school student—minors are identified by letters in sensitive cases—who argues that Gloucester (Va.) High School’s policy disallowing him from using the facilities that correspond with his preferred gender identity violates federal law (Title IX of the Education Amendments) regarding sex discrimination in education. Upon being informed of G.G.’s conflict with the Gloucester County School Board, James A. Ferg-Cadima—a civil servant in the DOE’s Office of Civil Rights (OCR)—decided to get involved. He wrote a letter purporting to interpret the relevant regulation, stating that “[w]hen a school elects to separate or treat students differently on the basis of sex in [situations like this], a school generally must treat transgender students consistent with their gender identity.”

While the district court rejected this interpretation, the U.S. Court of Appeals for the Fourth Circuit deferred to the agency. The Gloucester County School Board now seeks Supreme Court review. Cato, along with three respected law professors (Jonathan Adler, Richard Epstein, and Michael McConnell), has filed an amicus brief supporting that petition.

We do so not because we necessarily oppose OCR’s position as a matter of policy—that’s a question for another day—but because we oppose its unconstitutional method of enacting that policy. OCR seeks to change federal law not through notice-and-comment rulemaking as required by the Administrative Procedure Act, but through an informal, unpublished letter written by a low-level bureaucrat.

Supreme Court precedent under Auer v. Robbins, 519 U.S. 452 (1997), says that courts must give such agency interpretations of their own regulations controlling deference. But deferring in this way incentivizes agencies to write vague regulations because they can be confident that they will then be free to reinterpret them at a later date without having to go through the trouble and expense of the rulemaking process—changing the law with no notice to regulated entities or the general public. Auer deference also allows executive agencies to consolidate both legislative and judicial power by effectively rewriting regulations beyond the scope delegated by Congress and then judging for themselves whether they’ve overstepped that authority.

We call on the Court to take this opportunity to overrule Auer and declare that the judiciary will no longer blindly accept self-serving agency interpretations, but make their own independent determinations based on a searching and reasoned reading of the regulations at issue. Should the Court choose not to overrule Auer, we suggest that—at minimum—it hold that only agency interpretations that have received the public scrutiny of notice-and-comment rulemaking merit judicial deference. 

The justices will consider whether to take the case of Gloucester County School Board v. G.G. later this fall.

How the FDA - And Other Agencies - Shape What You Read About Them

An important investigation by Charles Seife in Scientific American looks at how scientific newsmakers – in this case the U.S. Food and Drug Administration (FDA) – use “close-hold embargoes” to manipulate news coverage on breaking stories. Embargoes in themselves are a common enough practice in journalism; the special feature of a “close-hold” embargo is that it conditions a reporter’s access to a forthcoming story on not seeking comment from outside, that is to say independent or adversary, sources. 

The result of this kind of embargo, critics say, is to turn reporters into stenographers by ensuring that no expert outside perspective contrary to the newsmaker’s makes it into the crucial first round of coverage. And the FDA uses the technique to go further, according to Seife: it “cultivates a coterie of journalists whom it keeps in line with threats.” In fact, it even “deceives” disfavored major news organizations like Fox News “with half-truths to handicap them in their pursuit of a story.” 

The FDA has used this means of forestalling informed critical reaction on major, controversial regulations such as the recent “deeming” rule governing e-cigarettes and vaping. It also used the same technique in unveiling a major public health ad campaign – taking measures, as you might put it, to shape opinion about its shaping of opinion. An FDA official even upbraided a New York Times reporter who, unlike her colleagues, noted the close-hold embargo in her report. The agency resented its news-shaping methods becoming public. 

The whole article is a case study in how government-as-newsmaker - and by no means just the Food and Drug Administration - can get the coverage it wants.

Because of the ADA, Universities May Withdraw Free Online Course Content

On September 13, the University of California at Berkeley announced that it may have to take down online lecture and course content that it has offered free to the public: 

Despite the absence of clear regulatory guidance, we have attempted to maximize the accessibility of free, online content that we have made available to the public. Nevertheless, the Department of Justice has recently asserted that the University is in violation of the Americans with Disabilities Act because, in its view, not all of the free course and lecture content UC Berkeley makes available on certain online platforms is fully accessible to individuals with hearing, visual, or manual disabilities.

That Berkeley is not just imagining these legal dangers is illustrated by this clip from Tamar Lewin of the New York Times from February of last year: “Harvard and M.I.T. Are Sued Over Lack of Closed Captions.” 

I’ve been warning about this, to no apparent avail, for a long time. In a July post in this space, I noted the tag-team alliance of the U.S. Department of Justice, disabled-rights groups, and fee-seeking private lawyers in gearing up web-accessibility doctrine: when extreme positions are too politically unpalatable for DoJ to endorse directly, it supports private rights groups in their demands, and when a demand is too unpopular or impractical even for the rights groups, there’s nothing to stop the freelance lawyers from taking it up. 

Neither political party when in office has been willing to challenge the ADA, so there is every reason to believe this will continue. If you appreciate high-level course content from leading universities, but are not a paying enrolled student, you’d better enjoy it now while you can.