In 2013, we released a redacted version of FedFin recommendations provided pro bono to the CFPB on ways to enhance the regulation of consumer financial services Since then, the Bureau has, however, plowed on in ways we strongly advised against, lugubriously issuing ever more complicated regs subject to a dizzying spiral of “clarifications.” This is confusing and costly to covered companies, but – far worse – it also defers meaningful action on even the highest-risk practices, allowing markets to evolve around regulated banks in increasingly worrisome ways. In short, the Bureau’s process is a doom loop – it takes forever to write a complex rule that is never quite final so no rules clearly curb emerging abuses, which then get worse. Even more worrisome, the agency in its payday actions has now embarked on a longstanding Washington practice that ensures failure. Trying to make everyone happy by accomplishing conflicting goals in the same regulation, the Bureau has again made it clear that it will be the target of a circular firing squad. Far better, I think, for a courageous agency with awesome backing from the White House to do something substantive quickly to make consumers safer faster.

What’s wrong with the payday proposal? First, it isn’t one. Despite all the Presidential praise and press attention, all the Bureau in fact released is an outline. In terms of final action, that’s like being handed a Ph.D. after getting a nice score on your PSAT. Any final CFPB rules with legal bite will take at least two years to finalize once all the APA delays are taken into account along with the need to give firms some compliance time and the Bureau’s habit of rewriting its rules shortly after at long last releasing them.

The second problem with the payday proposal is that it’s a set of alternatives. Were all of them ultimately put in a final rule, the ability of the Bureau to enforce it, the industry to implement it, or consumers to know what then to select would be, at best, uncertain. Thus, while long, the outline is only a guide to what each commenter will love or hate – not to a coherent policy on which quick action could ensue.

Why take so tentative a path to substantive regulation? One would assume the Bureau had a pretty good sense of knowing what its options are in this sector. The outline is accompanied by an extensive reading and survey list which, if nothing else, shows where the Bureau is spending some of its considerable funding. Could no one reach preliminary conclusions on which to make a concrete proposal after all this staff work?

The worst possible way to make consumer-protection rules is to stigmatize a business activity and then do nothing to crimp it. This creates tremendous legal and reputational risk for regulated banks, which on their own and under orders from their regulators then exit the sector. This leaves an open field for other players who will recant sanctioned practice only under express edict (and sometimes not even then). Heavyweight proposals with feather-light impact are not only ineffectual for the foreseeable future, but also a near-term policy driver that makes the shadows in retail finance still larger and darker. The CFPB has protected itself for the near term from a painful political price for its payday rules, but what about consumers and their continued exposure to abusive payday practice?