Don’t kill the Consumer Financial Protection Agency, Part 2

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My colleague Michael Grunwald has a piece on making the case for a Consumer Financial Protection Agency (CFPA), since it seems the Senate Banking Committee may soon deliver the whole idea to the trash heap. I’ve said in the past why I think a stand-alone agency is a great idea; Ezra Klein more recently summed up the argument:

The whole point of the CFPA is that those other agencies tend to abandon that mission because it’s not core to their responsibility. The Federal Reserve has a lot of consumer protection power, but very little of its was exercised in the run-up to the crisis because the Federal Reserve isn’t interested in consumer protection.

Right on, Ezra.

In an op-ed in today’s WSJ, George Mason law professor Todd Zywicki makes the case that a CFPA wouldn’t have prevented the insane lending practices that transpired during the housing bubble. Well, I’m not so sure that’s completely true. I respectfully present a little piece of evidence called Texas.

Texas, as you may know, largely side-stepped both the housing boom and the housing bust. Here’s a great chart from the Dallas Fed comparing home prices in Texas to those in the rest of the nation. There are a lot of theories about why this is the case. They range from Texas not being as capacity constrained in its land (the supply-and-demand argument) to the high cost of homeownership in the state (Texas doesn’t have an income tax so they really get you on property taxes).

Then there’s the theory I’m most likely to buy: Texas has some of the strictest laws in the nation when it comes to what lenders are and aren’t allowed to do with home loans. Texas has gotten heat in the past for being overly cautious—the state didn’t even allow home-equity loans until the late 1990s—but that caution now seems to have been well-deserved.

And who oversees such practices? Well, the Office of Consumer Credit Commissioner (OCCC). It’s essentially what we’re talking about creating at the federal level. The OCCC in Texas regulates home-equity loans, second mortgages, home-improvement loans, motor vehicle sales financing, pawnshop transactions, payday loans and retail credit accounts, among other things.

The Consumer Financial Protection Agency already does exist—on the state level. And it seems to work.