Criticism of Consumer Financial Protection Bureau acting director Mick Mulvaney’s recent comments to a banking group has largely focused on his advocating a pay-to-play system for interest groups to access government officials. But similarly disappointing is his wanting to close the CFPB consumer complaint database, on the grounds that he shouldn’t have “to run a Yelp for financial services sponsored by the federal government.”
Mulvaney has it backward. We think governments need more, not fewer, Yelp-like services in their arsenals. And conservatives should be particularly supportive of such innovations. Consumer-supplied information can reduce reliance on regulation and enforcement to protect consumers by encouraging market forces that reward better business practices.
While the CFPB is politically controversial, it is unique in being the first federal agency designed to take advantage of the widespread availability of broadband Internet. To fulfill its mission of protecting financial services users, the CFPB relies on information collected directly from consumers. In that sense, the bureau has embraced an uncontroversial economic view that the free market works best when all sides have complete information about one another.
Rather than starting, as other agencies do, with prescriptive regulations, the CFPB encourages best practices the way private review sites do — by letting actual customers speak. Regulation becomes a backstop when consumer complaints unearth bad practices that market forces alone cannot correct.
The bureau designed its website to emulate the efficiency of Internet-enabled services that create value through crowdsourced information. Whether by providing a marketplace to review existing businesses, such as Yelp or TripAdvisor, or building a platform on which both the service provider and the customer grade each other (eBay, Uber, Lyft, Airbnb and VRBO), peer-to-peer ratings provide future customers with concrete metrics upon which to make informed choices.
It’s also a cheaper way to regulate, and one less prone to abuse. Before the rise of online rating services, regulators were solely responsible for certifying the business practices of regulated firms. Inspectors, for example, ensured that taxi drivers, hotel proprietors and restaurants charged posted prices and met health and safety criteria.
Now, customer ratings provide a more complete and more efficient regulating force. Potential negative reviews do more to incent Uber drivers (and passengers) to act appropriately, for example, than does a periodic review from an overworked inspector.
Consumer reviews, of course, do not eliminate the government’s responsibility to establish and enforce minimum standards.
In 2013, for example, California became the first state to define standards for drivers using ride-sharing services. But rather than deploying an army of examiners to determine whether the standards are being met, California requires the platforms themselves ensure driver compliance, relying on individuals to provide more timely and accurate information and saving significant state resources.
In some industries, including finance, the government is in a better position than the private sector to gather and analyze the information. It’s unlikely a private rating service for banks would have had the incentive or ability to gather the data necessary to see that Wells Fargo was creating sham accounts.
Other opportunities to use data to improve government services are legion. For example, the 2010 National Broadband Plan, mandated by legislation passed in response to the economic meltdown and recession, proposed using digital platforms to advance a wide variety of national goals.
In every category specified by Congress, including health care, energy, education and job training, the plan identified valuable new digital data sources. A Green Button initiative from the Energy Department provides consumers with information about their electricity use, helping them save both energy and money. Similarly, a Blue Button service from Veterans Affairs lets veterans improve their health care by providing clearer data about their medical histories.
And to unleash private innovation, the federal government in 2009 created Data.gov, which gives entrepreneurs and researchers ready access to vast stores of government information. Thousands of new apps and services have been built, ranging from statistics on TSA wait times to maps showing employment trends town by town.
Closing the CFPB database would be a major step backward in what has been a remarkable information revolution in government. As a principled conservative, Mulvaney should be advocating for more apps that empower consumers to make better-informed decisions, drive improved markets and mitigate the need for more heavy-handed regulatory interventions.
Lawmakers across the political spectrum should be united in demanding the replacement of an antiquated analog public sector with more efficient and effective digital powerhouses built on broadband. While we can debate how best to drain the swamp of pay-to-play, the value of peer-to-peer is indisputable.
Just as in business, the technology exists today to create the data-driven, high-performance government services that constituents deserve. And which taxpayers rightfully demand.
Blair Levin is a nonresident senior fellow at the Brookings Institution. In 2009, he oversaw development of the National Broadband Plan.