The Consumer Financial Protection Bureau has had a hard time in court recently. Its efforts to demand information and documents from a for-profit college accreditor were recently rejected by a federal judge in D.C. on the grounds that the agency lacks the statutory authority to stray this far from consumer finance. This setback closely follows a potentially more significant challenge to the CFPB, as the Court of Appeals for the D.C. Circuit expressed significant skepticism as to the CFPB’s ability to reinterpret a rule whose interpretation had been long settled by the Department of Housing and Urban Development.
The court also expressed doubt over the CFPB’s authority to bring enforcement actions without a statute of limitations, as well as the very structure of the agency. Given how overly ambitious the design and conduct of the CFPB was from the beginning, it’s no surprise that it is facing push-back from the courts. Ultimately, it will take Congress to get the CFPB right.
While the courts’ actions to pare back the CFPB may provide comfort to those who think the agency has too much power and too little accountability, there is only so much the courts can do, and they may even make it worse. In challenging the CFPB’s authority, the Accrediting Council for Independent Colleges and Schools was able to successfully argue that it was the Department of Education, not the CFPB, which has authority to investigate accreditors.
While this ruling may provide clarity with regard to one small part of the CFPB’s potential ambit, the court can only address the facts presented. This still leaves the CFPB’s jurisdiction largely undefined and provides no predictability of the CFPB’s statutory jurisdiction for any other industry. Instead these companies will need to wait to be targeted by the CFPB and hope they can afford the litigation necessary to get clarity on who their regulators actually are.
Likewise, while the D.C. Circuit may hold that an independent director who can only be removed for cause is unconstitutional, the court is unlikely to optimize the agency’s structure. Instead the court will likely do the minimum necessary to make it constitutional. As in the case of the Public Accounting Oversight Board, this could be as simple as making the director removable at the president’s whim. This risks turning the CFPB from an overly powerful agency—with almost no meaningful Congressional oversight and independent funding but some political insulation—to an overly powerful agency with almost no meaningful Congressional oversight and independent funding that is a direct extension of the president’s power. This would not only further empower the executive branch at the cost of Congress, but it would also risk policy being whipsawed as new administrations come in, destroying the regulatory predictability that markets need to thrive.
Given that the courts may well upset the status quo, but only marginally so, Congress could instead take the lead. Congress has the ability to reform the CFPB so it accomplishes its important mission without unnecessary uncertainty. First, Congress could turn the bureau into an independent bipartisan commission. This will not only make the agency more stable and politically balanced, but it will also provide more diverse points of view and allow for a greater breadth of expertise in the agency’s leadership. This is especially important given the variety of products and pace of innovation in the markets that the CFPB covers. Second, the CFPB should have its jurisdiction clarified, both in terms of scope and also temporal reach, including clear statutes of limitations for enforcement actions. Finally, Congress could get more control over the agency’s funding, replacing the CFPB’s direct and untouchable feed from the Federal Reserve with traditional appropriations.
The power of the purse was to be Congress’—and by extension the people’s—great check on the executive, and it should be reclaimed. Taking these steps can allow the CPFB to focus on a clearly defined mission in a fair and predictable way, which would be a huge step in the right direction.