Hensarling questions CFPB rulemaking after court decision

The Consumer Financial Protection Bureau (CFPB) is legally required to jump through more hoops to craft new rules for financial products, according to a top House Republican.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) contended Wednesday that a ruling from a federal appeals court that altered the legal structure of the consumer agency now means the CFPB faces additional restrictions on its regulatory work.


Hensarling, a longtime critic of the CFPB, believes the agency now has to adhere to any number of executive orders, which could place new limits on the agency’s ability to craft new rules.

“The court’s ruling makes clear that the Constitution requires the CFPB to operate as an executive agency, making the Bureau obligated to fully comply with these executive orders,” said Hensarling in a letter to CFPB Director Richard Cordary.

Earlier this month, a federal appeals court ruled that the current structure of the CFPB is unconstitutional. The court determined that the agency, which is run by Cordray as its lone director and operates independently of the White House, upends historical precedent, under which typically independent agencies are run by bipartisan commissions.

In its decision, the court ruled that given its novel structure, the CFPB should not be considered an independent agency, but rather one operating as part of the Obama administration, similar to the Treasury Department.

Now, Hensarling is arguing the practical ramifications of that ruling should place additional restrictions on the agency’s regulatory work.

For example, Hensarling told Cordray that the CFPB now must comply with an Obama executive order from 2011, which directed agencies to adopt rules only if they determine the benefits outweigh the costs, and to periodically review existing rules to see if they should remain in effect.

Other executive orders Hensarling highlighted that the CFPB should not adhere to include one directing agencies to extensively consider input from tribal governments before implementing rules impacting those communities. Another directs agencies to consult with state and local governments before drafting rules.

In short, Hensarling is now contending that the CFPB faces additional restrictions on how it drafts regulations. He asked Cordray to provide written confirmation the agency will now comply with those requirements, given the court’s ruling.

A CFPB spokesperson said the agency was reviewing the chairman's letter, adding that the CFPB disagrees with the court's ruling.

However, allies of the CFPB were quick to urge the agency to ignoring Hensarling's request. For one, some expect the government to eventually appeal the court's ruling.

And Americans for Financial Reform pointed out that the CFPB is listed by name in the U.S. code as an "independent regulatory agency." The group argued that no matter what the court said, the CFPB is specifically excluded from such requirements as an independent agency.

This post updated at 4:06 pm and 5:11 pm.