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Unconstrained Powers of the Consumer Finance Protection Board PDF Print E-mail
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Thursday, 05 January 2012 19:02

Diane Katz

January 4, 2012 at 4:30 pm

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By circumventing the lawful confirmation process, President Obama’s attempted “recess appointment” today of Richard Cordray to direct the Consumer Financial Protection Bureau (CFPB) demonstrates the very unaccountability that pervades the agency and requires reform.

Although operational now, the CFPB has been largely confined to enforcing existing regulations, without authority to impose new rules until a bureau director is in place. But so eager was the President to unleash the bureau’s regulatory muscle that he chose to test the outer limits of his constitutional powers to make appointments during the supposed recess of the Senate. In addition to constitutional problems with the manner in which this was done, Obama has contributed to the lack of accountability that infuses the bureau structure.

Spawned by the vast Dodd–Frank financial regulation statute, the CFPB enjoys sweeping powers over all manner of consumer credit, including consolidated and expanded authority over consumer financial products and services previously wielded by seven federal agencies. We’re talking credit and debit cards, mortgages, student loans, savings and checking accounts, and more. Essentially, all consumers’ money falls under bureau purview unless it’s under a mattress.

The CFPB is ensconced within the Federal Reserve, with its funding set by law at a fixed percentage of the Fed’s 2009 operating budget—increasing from 10 percent in 2011 to 12 percent in 2013. Therefore, its budget is not subject to the same level of congressional control as most other federal agencies. Congress should change thisbudgetary gimmick, which limits congressional oversight of the agency. Moreover, the Fed is statutorily prohibited from “intervening” in bureau affairs.

Bureau accountability is also minimized by the vague language of its statutory mandate. It is empowered to punish “unfair, deceptive and abusive” business practices. While unfair and deceptive have been defined in other regulatory contexts, the term abusive is largely undefined, granting the CFPB officials inordinate discretion.

Bureau proponents deny any lack of accountability, claiming that the CFPB can be overruled by the Financial Stability Oversight Council, which is composed of representatives from eight other financial regulatory agencies. However, the council’s oversight authority is narrow, confined by statute to cases in which CFPB actions would endanger the “safety and soundness of the United States banking system or the stability of the financial system of the United States.” Any veto of CFPB action would also require the approval of two-thirds of the council’s 10-member board.

These sweeping and virtually unconstrained powers of the CFPB would be a matter of concern no matter who heads the agency. Indeed, 44 Senators blocked the confirmation vote on Cordray to highlight the need for structural reforms of the bureau. Now that Obama has demonstrated how little accountability will attach to the bureau, such a restructuring is needed now more than ever.