Do some laws do more harm than good?

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Professional headshot of Mark Lehman

08/18/2016 | Author: Mark Lehman

In Lehman’s Terms

I saw a driver run a red light recently and it got me thinking about laws. There are laws that benefit our society, and laws that arguably do more harm than good.

But what about laws that are just unnecessary?

These unnecessary laws often seem to be among the most intrusive into our daily lives and lead to a lack of trust in our government. Nowhere is this truer than in Washington, D.C., where our federal government has reached new lows in public confidence.

Laws with consequences
Most unnecessary laws can be classified into a category I call the Laws of Unintended Consequences.

Every day, private citizens must attempt to live and do business in a system that is fraught with layers upon layers of legislation that was passed with the best of intentions but ultimately collapsed thanks to unintended consequences.

A great example of this was the attempt by Congress to respond to the 2008 financial crisis with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

An attempt at reform
Dodd-Frank was a quick-fix congressional action designed to rein in Wall Street and squelch the actions of unscrupulous lenders to protect the consumer—certainly an honorable goal. 

Except that the act created a bureaucratic quagmire of governmental regulations that add considerable cost to real estate transactions, delay closings, and prevent qualified homebuyers from obtaining the American Dream of homeownership.

The regulatory authority of Dodd-Frank was ultimately turned over to half a dozen federal agencies and led to the creation of two new agencies, one of which is the Consumer Financial Protection Bureau.

As an example of the challenges Dodd-Frank created, a CFPB initiative implemented last year has made it difficult for real estate professionals to obtain copies of their clients’ closing documents. This is a common practice that enables real estate agents and brokers to answer clients’ questions and look out for their best interests. After much lengthy outcry by real estate professionals and consumers, the CFPB is now considering reversing course and proposing updates to this unnecessary rule.     

This relatively new agency has far-reaching supervisory powers over most financial institutions. And for the first time in history, a federal agency now has jurisdiction over many non-banking financial companies, including mortgage companies. To me, the worst part of the CFPB is that it operates outside the purview of Congress. 

In Lehman’s terms, this means Congress created a superagency with significant enforcement powers to levy fines and penalties, but Congress has no oversight over the CFPB’s actions. 

Most lawmakers agree that Dodd-Frank went too far and has actually hurt some of the consumers it was trying to help. Unfortunately, any repeal or reform efforts have been thwarted by congressional gridlock and partisan bickering.

Fixing—and avoiding—the problem
The Laws of Unintended Consequences are not limited to the federal government. 

Just like at the federal level, repealing a state law is a difficult—if not impossible—proposition. The solution is something Texas lawmakers discovered decades ago, and no matter how much our state changes, lawmakers haven’t compromised this basic premise of lawmaking: The best way to avoid unintended consequences of laws is to not pass those laws in the first place.

Texas does this by avoiding knee-jerk reactions to isolated and often minor events. Most state legislatures have followed the federal government model and now meet on an annual and almost full-time basis.

The Texas Legislature meets only for 140 days every two years. This gives lawmakers plenty of time before session to slowly and deliberatively consider legislative intent of laws and the consequences of their actions.

This system works, and it’s what makes Texas the free-enterprise envy of the nation. That is an intended consequence to be proud of.

Mark Lehman is vice president of Governmental Affairs for the Texas Association of REALTORS®. 

Categories: Governmental Affairs, In Lehman's Terms
Tags: legislative affairs, governmental affairs, texas legislature, in lehman's terms, cfpb, consumer financial protection bureau


John M. Stone, CCIM, CPM, CIPS on 08/19/2016

Good column, Mark. 

Both Dodd-Frank and Sarbanes-Oxley are like a thousand camel fleas in the armpits of small business and cause many investors in commercial real estate to sell because they are so onerous in maintaining compliance, as is also the case with Obamacare. 

Obamacare has caused many employees in the restaurant business now to have to get two 29-hour per week jobs just to keep up with the amount of money they used to make with one 40-hour per week job—Exhibit A to the Law of Unintended Consequences you pointed out.  Now, nobody wastes food in a restaurant and take all leftovers home because they are so concerned how BO and new rules and regulations are going to adversely impact their businesses and livelihoods tomorrow.  So, when you ask a waiter if you can have an Obama Box to take home your leftovers in a restaurant, you don’t have to explain what an Obama Box is. The waiter already knows what it is, because they do the same thing themselves. 

NAR now has several on staff in its GAD just to track the onerous rules and regulations being established because Congress refuses to set forth, for political reasons, specifics in their laws because they are afraid of being held accountable for it.  That way, they can pass the buck of blame to bureaucrats.  Hopefully, we will get some relief in the November elections.
Since 1972, we as CCIMs have noticed that the business migration within the United States has been based on folks and businesses fleeing unfriendly states and going to friendly states for business opportunities like Texas has.  Cited most frequently are that Texas has no state income tax and that Texas is a Right-to-Work State.  A telling stat that such is fact is that between 2009 and 2015, according to Moody Analytics, the entire nation would have had negative jobs growth, were it not for Texas.  That means that Texas is carrying the rest of the United States on its back economically.  Piggy-back—a nation of over 300-million is riding on the back of Texas’ 26-million.
Most recently, oil price and natural gas price reductions have drastically impacted certain areas of Texas dependent upon oil and natural gas income; however, some communities like Dallas/Fort Worth and Austin and, to a lesser extent, San Antonio, have not been as negatively impacted as Houston or West Texas by the serious downturns in the oil and natural gas business or production income in the Energy Sector.  Dallas/Fort Worth, in both real numbers and also in percentages, is now leading the nation in new jobs creation.  Most of that is from businesses relocating from Tax-Hell and Regulatory-Hell States to Tax-Haven States like Texas.  More and more states are now copying Texas, going to no personal income tax at the state level and Right-to-Work laws.  They, like Texas, are starting to flourish now.  Money always goes to where it is most welcome.
Texas is not so much a state big on security for everyone economically, but it wins hands-down when it comes to opportunity for everyone economically.  It is known far and wide for NOT WANTING to strangle capitalism and new business formation and for expanding existing businesses.  God Bless Texas!

Between 2009 and 2015, it certainly lived up to its name in Jobs Creation.  Truly, it was the Lone Star in the entire United States in economic performance.  Thanks be to God and thanks be to the Texas Association of Realtors for helping to create the proper climate and environment for that to occur in the Texas Legislature.  In Texas, businesspersons are regarded as heroes. Would that were still true elsewhere in the United States.

Thanks, Mark, for bringing focus to those topics with your blog!

John M. Stone, CCIM, CPM, CIPS

T.E. Sumner on 08/19/2016

I certainly agree with the sentiment that laws have consequences, often the most insidious being unintended ones.  Dodd-Frank is no exception.  The biggest problem is not in lack of oversight itself, but in the writing of the regulations. 
Congress writes a law of 800 pages and the bureaucrats turn it into 22,000 pages of regulations (check out PP&ACA;).  These regulations are simply published as “law” for us to follow, purportedly in support of the actual public law passed by legislation.  What’s wrong with that?
If Congress had intended for insureds in states without state exchanges to get tax subsidies for buying Obamacare, they would have written it into the actual 800-page HR3590.  They didn’t.  In a landmark lawsuit against those tax subsidies authorized by bureaucrats in contradiction to the wording in the law, the people lost and bureaucrats won in the Supreme Court. 
Why doesn’t Congress have the power to ratify regulations made by bureaucracies prior to their implementation?  The Constitution doesn’t give the Executive branch the power to write regulations and in effect “legislate” - that power is reserved solely to Congress, the Legislative branch. 
Until that miscarriage of Constitutionality is corrected, bureaucrats will continue to legislate.  Moreover, Administrative Law Judges, operating under the Executive branch, will adjudicate, granting the power to “legislate,” “execute” and “adjudicate” to the Executive branch in complete and utter perversion of the Constitution, which set out to separate those functions to keep them incorruptible. 
As far as the Real Estate Bubble, the Mortgage Meltdown and the Great Recession, oversight didn’t even bring out the real causes of the 3 successive events.  Frank Raines wasn’t called before Congress (at least that we heard of), and when Ben Bernanke showed up at a Congressional oversight hearing, looking like a deer in the headlights, I hoped that some Congressman would ask and Bernanke would confess that he caused the collapse and made it worse.  Instead he sighed largely when no one in the hearing figured out his role in interest rates and the collapse.  Joke’s on you and yours.  Both Raines and Bernanke retired with millions. 
Oversight can’t work until knowledgeable people are doing the overseeing and the ignorant loud-mouthed political rhetoric stops.  However, the underlying flaw will continue to plague us until Congress prevents legislation from bureaucrats by requiring ratification of all regulations.

Aaron Layman Properties on 08/18/2016

“This system works, and it’s what makes Texas the free-enterprise envy of the nation.”

Uhhh….No it doesn’t! Just take a look at our two-tiered property tax system that is now burying middle class homeowners alive in Texas. The Texas property tax system is a travesty of a mockery of a sham. It’s crony capitalism writ large! Our legislature should have fixed the property tax system and school finance years ago, but instead they have been sitting on their hands in a pro-business love fest that has now become a gaping wound in the Texas real estate market.

You can gripe about Dodd Frank and the CFPB if you want, but neither would have been necessary if all of the FRAUD on Wall Street had been prosecuted and people (bankers) had been sent to jail for the obvious crimes they committed.  All the government (including Texas) did was pretend that the fraud didn’t happen. Did you see any major bank executives prosecuted (or even indicted) for their part in the largest financial crime fest in human history??? Nope! Instead the Fed quadrupled their balance sheet and the national debt has almost doubled (approaching $20 TRILLION), all so big business and Wall Street could keep the scam going.

Kyle Ranne on 08/18/2016

Sam, why should a person have the right to vote if they can’t prove they are who they say they are?  How would one know if they even have the legal right to vote?

Gary Hulkowich on 08/18/2016

Sorry Glen Moss, the savings and loan debacle has nothing to do with this subject.  Dodd-Frank only needed to eliminate the fraudulent mortgage companies, reel in Wall St, and put back the integrity to the real estate transaction, but it went way overboard into all aspects of consumer finance and regulated things that did not need regulating.  The small part that should have been the main part of the law would have been beneficial and cost of it would have been under control.  Now it is out of control and costing way more than its value.  So $12 billion has been recovered for 27 million people.  that’s an average of $444 per person.  this might change a person’s life who is living in poverty, but I doubt that anyone of that stature was closing real estate deals and got fleeced.  so, bottom line is this has little impact to the individual, but huge political impact to those who fight with one another in Washington.  And I do know people who could not get a mortgage because the laws changed how people can qualify so much so that even legitimate income on W2’s cannot be used depending on circumstances due to this law.  Admittedly, this is a minority, but it IS happening, and those people who got caught in its jaws don’t think it is a small problem.

Tommy Thomas on 08/18/2016

Well said and Amen!

Lilly Hughes on 08/18/2016

I concur with your comments. Yes, you didn’t mention every single debacle of every single government, but that was not the point of the story as I read it. The point is Washington makes laws based on no real need. If Dodd-Frank had an ounce of good in it, it had pounds of uselessness. To give one agency the power the CFPB has (and by the way have they finished their bright new building paid with the fines they assess and collect) is crazy. I believe this is the result of bank lobby that desires to become real estate brokers. If they can get us out of the most critical part of the transaction, what good are we? We wrote that contract. We know what’s it it and if it’s contract. The title company and lender do not. My first closing under the new rules called for the seller to pay for a residential home warranty. I could not see his side of the disclosure to know if it had been included. I had to call the title company. Why?

Glen MOss on 08/18/2016

Hello Mark,

No CFPB is not perfect, nor is your comments.

To say over 15,000 pages of comprehensive reform a “quick-fix” is understating the Act.

While some of your comments are spot-on, you fail to mention the good that has come from the Act.  So far, over 12 billion dollars had been returned to over 27 million ripped-off Americans.  I am sure they are glad the CFPB is in place.  And, I know of no qualified home buyer that has been prevented from the American Dream of home ownership.  If they were rejected, it was for other reasons.

Texas is a great place to do business.  However, you make no mention of the Savings and Loan debacle from our recent history.  Texas had over half of all failed S&L’s in the entire country.  It put our State into a steep recession and very few were held accountable. 

Lastly, I do like most of your writings, but sadly this is not worthy of Hall of Fame status.

John Harrell on 08/18/2016

I’m so glad you address the behemoth legislation known as Dodd-Frank. Written quickly and without much thought, Dodd-Frank has added multiple layers of unnecessary regulation. Fortunately we have an efficient legislature in Texas which works together in the best interests of all Texans.
I concur with Candy’s statement. Great piece as always, Mark. Keep ‘em coming!

Sam on 08/18/2016

Texas legislature is an embarrassment, i.e. attempting to overturn Roe vs Wade by the recently overturned law to shut down clinics, attempting to shut down Planned Parenthood, & overturned voter ID law, which was not solving a legitimate problem but an attempt to reduce voter turnout. And then there are the gerrymandered districts.

Candy Cargill on 08/18/2016

This is truly a “Hall of Fame”  commentary by Mr. Lehman. 
If ever there was a Law that was meant to do good that has caused such a mess it is this one.
Speaking of Texas, just this morning I heard how Texas is such a business friendly State.  We must be the envy of the Nation. 
Personally I think our REALTOR Association along with TREPAC is too!

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