The Republican-sponsored Financial Choice Act, approved by the House on Thursday, June 8, takes aim against the Consumer Financial Protection Bureau (CFPB), among other Dodd-Frank regulations. The move is not expected to progress in the Senate in its present form, but it constitutes a first salvo with measures that would both weaken the CFPB's ability to write rules and restrict its independence — making it easier to remove the agency's director and subjecting its budget to congressional appropriations.

Opponents of the agency contend that the CFPB​ lacks accountability, that it publicizes unverified complaints against financial institutions, and that it promulgates rules without regard to costs, thereby reducing the availability of financial services.

Proponents say there are reasons why consumers need financial protection. For instance, research has demonstrated widespread financial illiteracy and a troubling incidence of mistakes: decisions by consumers that jeopardize their financial well-being. Twenty-eight percent of men and 44 percent of women are financially illiterate, in the sense that they can correctly answer two or less out of five basic finance questions, a lower score than can be achieved on average by guessing answers randomly, according to the 2012 National Financial Capability Study (see chart).

Financial illiteracy is particularly common among young adults and the elderly. However, a majority of financially illiterate adults state high confidence in their ability to manage their finances, suggesting that they may not seek help even if they need it. Such mistakes encourage the provision of complex financial products that exploit consumer confusion and may contribute to systemic financial risk. For more see this EconoFact post: Consumer Financial Protection: In Need of Protection by Harvard University economist John Y. Campbell.

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