Who watches the watchmen?

Who watches the watchmen?
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The Consumer Financial Protection Bureau (CFPB), created as part of Congress’ response to the financial crisis, is among Washington’s newest federal agencies. And just like the youngest siblings of large families, it has received preferential treatment — treatment some lawmakers say is unconstitutional. 

Sen. David Perdue (R-Ga.) is leading an effort to make the CFPB more accountable to Congress, namely through its funding. Right now, the bureau’s funding mechanism operates outside normal congressional channels, freeing it from the scrutiny typically applied to federal agencies during the budget process.

For the good of both the CFPB and consumers, Congress would be wise to consider something like Perdue’s CFPB Accountability Act.

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The Dodd-Frank Act, Congress’ response to the financial crisis, created the CFPB with a leadership and funding structure nearly unique among all federal agencies. For instance, unlike most other single-director agencies, the bureau director can only be fired for cause, not at the discretion of the president.

Furthermore, the bureau is funded by direct transfers from the Federal Reserve, whereas nearly all other agencies receive appropriations from Congress. Each year, the director of the CFPB can request up to 12 percent of the Fed’s operating expenses — a request the central bank cannot deny.

The power of the purse is one of Congress’ most effective oversight tools, if not the most effective. When it comes to the CFPB, though, Congress’ ability to meaningfully demand accountability is conspicuously lacking.

A CFPB director’s five-year term ends early only through resignation or firing for cause. The bureau’s budget process, meanwhile, is all but free from meaningful criticism by elected officials. Together, a protected director and insulated budget add up to Perdue’s conclusion: The CFPB has an oversight problem.

Subjecting the CFPB to the frankly grueling congressional budget process isn’t about control, though. It’s about legitimacy.

Congress’ budget process is complicated, as dependent on ceremony as policy. Regular agencies have to trudge through all of it: Budget committees in the House and Senate hold hearings on total spending then break the various agency pieces apart for review by particular congressional committees. 

Here, lawmakers hit agency representatives with dozens, if not hundreds, of questions related to the agency’s goings on. Lawmakers sometimes use these hearings for “gotcha” questions and grandstanding, but the general result of this process is more open and transparent government. 

Once budgets are hammered out, agency officials repeat this dance for the appropriations committees, which cut the checks. All told, representatives of federal agencies end up interacting with more than 150 members of the House and Senate in the regular budget process.

In other words, any agency that wants funding must go through politicians who represent tens of millions of American consumers. 

Again, pulling the CFPB in this process is not about honoring protocol for protocol’s sake. It’s about making sure the people’s representatives have a proper say in the agency’s actions.

The heads of individual agencies do not craft the budget, nor budget authorizations, nor appropriations. Congress is in charge of those things. But that’s not the case for the CFPB.

Under Dodd-Frank, the CFPB’s director is required to appear twice per year before the House and Senate committees overseeing financial services, but that’s the extent of mandated congressional interaction: two hearings per year in two committees for an agency charged with protecting all American consumers on a half-billion-dollar budget.

The budget gauntlet gives agencies and elected officials alike an opportunity to tout their triumphs and explain failures. While it’s true that pet projects may get cut and members of Congress will sometimes use the hearings to score political points, this more-open process builds a relationship between agencies and the members that fund them. Lawmakers get “skin in the game,” so to speak.

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Even more important, though, subjecting the CFPB to the appropriations process gives Congress more opportunities to weigh in on the bureau’s actions in meaningful ways.

Right now, senators like Sen. Perdue can publish press releases criticizing the agency’s actions until their communications teams develop carpal tunnel syndrome — but they can’t really do anything meaningful. 

With other federal bureaus, Congress has tools to target specific agency actions. One, called “a limitation amendment,” can force both lawmakers and regulators to the negotiation table over some rule or other before anything more drastic develops.

Ultimately, the goal of pulling the CFPB into the appropriations process is better governance. The CFPB’s insulated funding structure helps explain why the bureau has had such a contentious relationship with Congress in its brief history — first when led by an Obama appointee, then under a Trump appointee. 

Placing the CFPB’s budget under congressional oversight would be better for the bureau, better for Congress and, most importantly, better for consumers. 

Beau Brunson is a senior policy analyst at Consumers’ Research.