The Consumer Financial Protection Bureau — the brainchild of then-Harvard law professor Elizabeth WarrenElizabeth WarrenBipartisan senators to hold hearing on 'toxic conservatorships' amid Britney Spears controversy Senate advances Biden consumer bureau pick after panel logjam White House faces increased cries from allies on Haitian migrants MORE created in the wake of the 2008 financial crisis as part of the Dodd-Frank Act — may finally gain some basic requirements of accountability and transparency, as Congress moves forward with a significant rewrite of Dodd-Frank rules.
The law tasked the CFPB with supervising depository institutions — banks, thrifts and credit unions — with more than $10 billion in assets. It also has supervisory powers over some other financial services, including mortgage brokers, mortgage originators and servicers, student loan companies and payday lenders. Established as an independent executive agency — with a single director who can only be dismissed for cause and with funding coming automatically from the Federal Reserve, rather than congressional appropriations — the CFPB’s structure has always been constitutionally suspect.
Indeed, the courts may intervene even before Congress has the opportunity. Last fall, a three-judge panel of the D.C. Circuit Court of Appeals struck down the CFPB’s unique arrangement on separation-of-powers grounds in PHH Corp. v. CFPB. More recently, the D.C. Circuit granted the bureau's request to hear the case en banc, which will put it before all 10 of the circuit's judges in a hearing scheduled for later this month.
Regardless how that case turns out, Congress is moving forward on the Financial CHOICE Act, sponsored by House Financial Services Committee Chairman Jeb Hensarling (R-Texas). The CHOICE Act, which cleared Hensarling's committee last week, would subject CFPB to the congressional appropriations process, reasserting the democratic accountability the agency has lacked since its inception. It also would change the bureau's mandate to both uphold consumer protection and ensure competitive markets by charging the CFPB with performing cost-benefit analyses for the rules it promulgates.
As my R Street Institute colleague Alex Pollock noted in his recent testimony before the Financial Services Committee, the bill "would end the anti-constitutional direct grab from public funds which was originally granted to the CFPB — and which was designed precisely to evade the democratic power of the purse."
By focusing its energies on enforcing consumer protection statutes and ensuring competitive markets, the Choice Act would streamline the Bureau’s functions. It also would reverse the original mistake of seizing power from the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and state financial services regulators, who already provided adequate supervision of these areas.
The CHOICE Act would improve accountability by restructuring the bureau as an executive branch agency and making its director removable by the president at will. But as Congress moves forward with the legislation, it should consider slight alterations that would take a longer view. An earlier version of the CHOICE Act Hensarling introduced in 2016 would have converted the CFPB’s leadership structure into a bipartisan commission with staggered commissioner terms, similar to what you see with the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Trade Commission and a host of other independent agencies of the federal government.
This would represent a positive change. Administrations come and go, and the next one easily could return the overall regulatory environment to a heavy-handed approach. A bipartisan commission would give both parties a voice in bureau decisions. A glance at Federal Communications Commission Chairman Ajit Pai’s dissents when he was a commissioner during the Obama administration demonstrates how valuable even minority opinions can be in helping to shape board decisions and highlighting when the majority reaches too far.
Since its inception, CFPB has evaded democratic oversight from either Congress or the president. The CHOICE Act would rectify this by making the bureau consistent with the Constitution’s demands and our democratic norms.
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