The Wells Fargo Case: This is Consumer Protection?

Recent news that Wells Fargo employees had opened as many as two million unauthorized customer bank and credit card accounts since 2011 was shocking. The bank fired 5,300 workers and agreed to pay $185 million in fines to the Los Angeles City Attorney, the Comptroller of the Currency, and the Consumer Financial Protection Bureau. The CFPB's media blitz reduced the other two agencies to bystanders.

The CFPB has been more political theater than good government since then-law professor Elizabeth Warren prodded the Democratic president and Congress to create the bureau in the 2010 Dodd-Frank law. The law insulated the new agency from Republican participation through a single director structure and funding independent of the congressional appropriations process. Warren was elected Massachusetts's senator. The CFPB quickly became a single-party, clandestine organization whose top priority is self-promotion.

Despite years of employee leaks and complaints about internal discrimination, illegal hiring, wasteful spending, inefficient regulations, and extortionate bullying of businesses, Democrats have thwarted every attempt to reformulate the CFPB as a transparent, bipartisan law enforcement agency.

The bureau's supporters have seized on the Wells Fargo case as blanket vindication of the CFPB. Warren and four other Senate Democrats quickly sent Senate Banking Committee Chairman Richard Shelby a letter demanding a prompt investigation. The Republican senator scheduled a hearing for September 20, at which Wells Fargo CEO Richard Stumpf will testify and answer many questions the CFPB will not. The Democrats should have quit while they were ahead.

That's because the Wells Fargo incident is a perfect illustration of what is both right and wrong about the CFPB. On the one hand, the bank employees' widespread misbehavior is a reminder that, in the absence of transparency and effective oversight, financial institutions can and often do make big mistakes. On the other hand, the CFPB's failure to quickly discover and stop the pervasive, prolonged fraud is a reminder that the same principle applies to government agencies.