Congress Blog

Warren's regulatory beast is under fire - and rightfully so

The Consumer Financial Protection Bureau (CFPB) has been under fire since the bureau began operation in July of 2010, but recently the flames have been fanned by a three-judge panel of the U.S. Court of Appeals for the District of Columbia. In the landmark case between the CFPB and the PHH, the court ruled unanimously that the CFPB's leadership structure is unconstitutional. Operating with almost no government oversight, the CFPB has been engulfed in controversy since its inception and has reached a fevered pitch now that the Trump administration has also made it clear that it wants Richard Cordray, the director of the CFPB, gone. According to Sean Spicer, Trump met with former Rep. Randy Neugebauer (R-Texas) in early January and is considering him to run the CFPB.

As originally constructed, the CFPB is arguably the single most powerful and least accountable federal agency in the history of our nation. Since there is no oversight, it means that the Bureau is free to direct its $600 million budget any way it wants - without input from Congress. Like many government bureaucracies, certain costs have spiraled out of control - the CFPB building renovations which soared from $40 million to about $216 million occurred under Cordray's watch is but one example.

No single bureaucrat should have despotic powers of the purse and be in control of a budget of this size without Congressional approval.

Taxpayers expect, but rarely see, government agencies spend their money wisely; bureaucrats often do the opposite, acting with impunity and without adequate transparency or accountability.

Neugebauer raised concerns months prior to the CFPB's launch in 2011, "Given the significant and perhaps over-regulating powers the CFPB has been given by the Obama administration, Congress must have a say on the appropriation of taxpayer money funding this agency's operation." It appears that the court agrees with him.

In its ruling, the U.S. Court of appeals wrote, "As an independent agency with just a single Director, the CFPB represents a sharp break from historical practice, lacks the critical internal check on arbitrary decision making, and poses a far greater threat to individual liberty than does a multi-member independent agency. All of that raises grave constitutional doubts about the CFPB's single-Director structure."

The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury."

Sen. Elizabeth Warren (D-Mass.), who led the establishment of the CFPB, has vowed to fight any changes to the regulator, in spite of the Appeals Court's ruling that the structure is unconstitutional. Her Democratic colleagues will join her in the fight, including Senate Minority leader Chuck Schumer (D-N.Y.). And now, 17 Democratic Attorneys General are looking to intervene in the legal battle between the CFPB and PHH over the constitutionality of the entity.

The Massachusetts Senator said, "If he [Trump] tries to act outside of the law, there would be a real battle in court." She often refers to the law, but seems to have been on the wrong side of it when she helped create the CFPB with an unconstitutional structure in the first place. The court stated, "With the for-cause provision severed, the President now will have the power to remove the Director at will, and to supervise and direct the Director."

The CFPB and its 900-page final rule have been driving some mortgage brokers and community bankers out of the lending business, or forcing them to merge with larger entities which reduces competition. Less competition and added regulatory costs means higher prices for consumers -the very group Warren claims to protect.

As Rep. Jeb Hensarling, chairman of the House Financial Services Committee said, "Free checking has been cut in half. QM increasingly stands for 'Quitting Mortgages' as community bank after community bank finds they can no longer offer mortgages to many of their deserving customers."

David Stevens, the CEO and president of the Mortgage Bankers Association said, "We are now in an environment in which the pendulum has clearly swung too far and created the most extraordinary regulatory framework that has ever existed in the nation. Over the next few years all stakeholders-industry, consumer advocates, and government agencies-should be looking at how the rules are working, and how to make certain that the markets are operating efficiently."

The bureau could help the markets function better by being very specific and much clearer so that lenders who are most concerned about compliance can make sure they are operating safely and soundly. Needless to say, there is work to be done."

But legal issues surrounding the CFPB began in its infancy. Richard Cordray was selected over Warren because the Obama administration did not believe that she could overcome strong Republican opposition. The Senate failed to confirm Cordray in December 2011, but despite this, on Jan. 4, 2012 President Obama issued a recess appointment to install Cordray as director, even though they were not officially in recess.

Obama's original recess appointment of Cordray was likely unconstitutional much like the National Labor Relations Board (NLRB) appointments he made.  The Supreme Court unanimously ruled that Obama exceeded his Constitutional authority when he filled the vacancies in 2012. According to Hensarling, "President Obama appointed Richard Cordray to head the CFPB at the same time and exact same manner as these unconstitutional NLRB appointees."

The Court of Appeals has not yet made its decision on whether to rehear the case, but now the Court has some new information to consider, courtesy of the 17 democratic attorneys general, who say that the election of Donald Trump compels them to intervene in the CFPB lawsuit.

The Court's ruling against the CFPB undermines Warren's credibility of her signature creation.  Prone to making wild rhetorical claims against her opponents, her dubious claims of Native American heritage only adds to the credibility-gap that has been demonstrated through dropping poll numbers. As it stands now, her favorability numbers in her home state of Massachusetts are eight percentage points below that of Republican Gov. Charlie Baker - in one of the bluest states in the nation. The polling numbers don't bode well for a run at the presidency in 2020 and may demonstrate that getting re-elected to the senate is no longer certain.

John Agostinelli is the co-author of the recently released book:  Easy Money and the American Real Estate Ponzi Scheme - the book examines the true causes of the real estate bubble, how many of the same factors still exist today and what needs to be done to prevent another financial calamity. www.easymoneyinamerica.com

The views expressed by this author are their own and are not the views of The Hill.

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