The Consumer Financial Protection Bureau found itself mired in a palace coup around Thanksgiving, when Obama-era director Richard Cordray resigned. Contrary to normal practice at government agencies, Cordray tried to name his own successor rather than deigning to let the president do it. A court has resolved that dispute, for now — but the episode was another reminder that the CFPB is far more complicated than it ever needed to be. The CFPB is complicated because its proponents think that democracy and normal governance practices have stopped working, and that we need to suspend them to achieve good ends.
In behaving as if the bureau was his to bequeath to someone else, Cordray wasn’t acting irrationally. Congress created the bureau in 2010 as part of the Dodd-Frank law, and gave it unique powers. For one, it doesn’t depend on Congress for an annual budget appropriation. Rather, it receives money automatically from the Federal Reserve, an independent body with its own permanent financial resources.
Congress tried to keep the CFPB independent of political pressures, even if it has now partially failed.
For another, its director, unlike those of other executive agencies, doesn’t depart with the end of a presidential administration. He or she serves five years, and can name a deputy to serve as own temporary successor if he leaves early. “Congress deliberately wrote the law this way to protect the agency from political influence from either party,” Sen. Elizabeth Warren (D-Mass.) wrote last week.
Actually, no — the language in the law is sloppy. No matter what Congress meant, Dodd-Frank says that the deputy director shall “serve as acting director in the absence or unavailability of the director.” But Cordray hasn’t gone on a fishing trip; he quit.
Nevertheless, Congress tried to keep the CFPB independent of political pressures, even if it has now partially failed. So what has the bureau accomplished with this independence? The bureau has racked up some wins: for example, exacting a $100 fine from Wells Fargo, plus restitution for customers, for systemic fraud in opening fake accounts. Through new rules, it has also added extra protection for poorer people who use pre-paid debit cards rather than bank accounts. And the bureau has helped consumers navigate their way through 1.2 million disputes with financial institutions, and put such complaints online for outside-research purposes.
Before the recent drama, the CFPB finalized a sensible rule governing the payday lending industry: that is, covering small loans to low-wage workers at high interest rates, often backed by their next paycheck or another form of collateral. The rule would require lenders to “determine whether the borrower can afford the loan payments and still meet basic living expenses” – thus not leaving the borrower in the position of extending the loan over and over, paying far more interest than the initial amount borrowed. The rule also limits the number of immediately repeated loans, and prevents lenders from repeatedly attempting to debit a borrower’s bank account, leaving the already broke borrower with huge extra fees from bounced checks.
But here’s the first hitch: Congress did not need to create an entirely new agency to create and enforce regulations. Long before the CFPB existed, the Federal Reserve, the Comptroller of the Currency and the FDIC had significant regulatory authority over banks — and the ability to ask Congress for additional powers when needed.
In fact, distraction over the legitimacy of the CFPB has pulled attention away from the bigger issues, with proponents of payday lending, for example, attacking the agency itself.
Proponents of the CFPB would say that pre-existing regulators were too lax with predatory lending because they weren’t independent enough.
Perhaps, but here’s the second hitch: the CFPB is not really independent, either. Congress can override its rules within 60 days of publication. Members from both parties have proposed a bill to do just that.
Distraction over the legitimacy of the CFPB has pulled attention away from the bigger issues...
Moreover, the CFPB has never had jurisdiction over auto dealers' lending, another area rife with abuse — because a Democratic Congress exempted the powerful industry from such scrutiny in 2010.
All of this drama points up an immutable fact: no government agency can be immune from politics. Congress has changed, and the president has changed. Provisions made seven years ago cannot stop the new people in charge from shaping the law and attendant regulations.
Politicians and advocacy groups in favor of standing up to special interests and better regulating bad lending practices and other financial misdeeds have to make their case on the merits, and through the democratic process.
This piece originally appeared at The Hill