The CFPB is under attack again, but this time may be different

Stop us if you’ve heard this one before: the Consumer Financial Protection Bureau faces a coordinated attack by Congressional Republicans and a vocal subset of the disgruntled companies it oversees.

In isolation, the topic is hardly newsworthy. Efforts to weaken and dismantle the Bureau have dogged it since it was just a glimmer in Elizabeth Warren’s eyes.

What is new, however, is that those long-suffering efforts are finally gaining traction—the CFPB’s losses are piling up faster than its victories.

The arguments against the CFPB haven’t changed much since its creation as a mandate of the Dodd-Frank Act. It is unaccountable to Congress, because it does not need funding authorization (its budget is overseen instead by the Federal Reserve and spent by the Bureau’s director at will). The Bureau, it is argued, is unaccountable to the President as it is headed by a single director who can only be removed “for cause” rather than “at will.”

The CFPB is also unaccountable to the judiciary, critics argue, as the Dodd-Frank Act mandated that courts give extra deference to the CFPB’s statutory interpretations, even if they are not granted exclusive interpretive authority. In this scenario, the Bureau can reinterpret existing consumer laws as it sees fit.

Beyond legalese, the argument critics lodge against the CFPB can be summed up very succinctly: By hurting businesses, it ultimately harms consumers.

“Created with good intent following the financial crisis, the CFPB’s breathtaking lack of accountability and proclivity for excessive regulations have harmed consumers and made it difficult for businesses to create jobs,” wrote Rep. Robert Pittinger (R-N.C.) in a recent opinion piece for the Charlotte Observer.

He argues that access to financial services has diminished (with only two new U.S. commercial banks chartered in 2016, down from 228 the year prior to the Great Recession. Prior to the CFPB, the average monthly account balance needed to qualify for free checking was $250; now it is $750.

Critics also say that the CFPB's “Ability to Repay” and “Qualified Mortgage” rules also have made it more difficult for low- and middle-income borrowers to qualify for a mortgage, with some community banks exiting residential lending altogether due to the complexity and burdens of the rules.

 “When banks are hiring more compliance officers than loan officers, and access to free checking and affordable loans are on the decline, we need to rethink our regulatory environment,” Pittinger wrote.

Rep. Ann Wagner (R-Mo.) is among the agency’s fiercest critics. During a March hearing of the House Financial Services Committee on the topic of the Bureau’s “Unconstitutional Design,” she had little that was positive to say about Director Richard Cordray.

“With an imperial director, the CFPB continually expands and overreaches its regulatory authority at the expense of American families who are desperate for economic relief,” she said. “It is time we hold Director Cordray responsible and restructure the CFPB within the framework of our Constitution.”

“When banks are hiring more compliance officers than loan officers, and access to free checking and affordable loans are on the decline, we need to rethink our regulatory environment.”
Rep. Robert Pittinger (R-N.C.)

Nothing embodies the “Washington knows best” mindset more than the CFPB by removing choices and making access to financial products more difficult under the guise of consumer protection,” Wagner added. “Since the creation of the CFPB, we have seen regulations that make it more difficult for consumers to qualify for a mortgage, obtain an auto loan, and access forms of credit.”

“The massive amounts of raw consumer data the CFPB collects, its foray into areas it was specifically prohibited from regulating, including auto lending and the practice of law, and the lavish renovation of its leased headquarters, which is costing taxpayers over $200 million, only underscore the need for intensive accountability and transparency,” Congressman French Hill (R-Ark.) said last week. “Having a consumer-friendly name doesn’t absolve it from the necessity of standard congressional oversight. When you pull back the curtain on this perceived irreproachable agency, you see something much uglier than its name might suggest.”

So, why are these longstanding complaints more relevant than ever? In part, it is because the CFPB is having a rough time in courtrooms.

In October, a three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled in the case of PHH Corporation v. CFPB that the CFPB director’s “for cause” removal provision was unconstitutional. The court’s ruling canceled the “for cause” provision, allowing the president to fire the director at any time and for any reason.

That ruling was vacated in February when the D.C. Circuit Court granted the CFPB’s request to rehear the case with the full panel of judges. Members of Congress, state attorneys general, and consumer advocacy organizations also pushed for the rehearing. The court will hear oral arguments on May 24.

Ahead of the upcoming oral arguments, the Justice Department—once a staunch defender of the CFPB in Obama Administration court filings—is arguing a Trump Administration viewpoint and trying to establish that Cordray can be removed by the President for reasons other than “inefficiency, neglect of duty, or malfeasance in office.” The “for cause” restriction, it argued in its own brief, is unconstitutional.

“A single-headed agency, of course, lacks those critical structural attributes that have been thought to justify ‘independent’ status for multi-member regulatory commissions,” the Justice Department wrote. “Moreover, because a single agency head is unchecked by the constraints of group decision making among members appointed by different Presidents, there is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the President’s executive policy.”

‘An outrageous violation of due process rights’

The following is from an opinion piece, authored by Rep. Jeb Hensarling (R-Texas) and Rep. Roger Williams (R-Texas). It was published on April 12 on the website for the House Financial Services Committee.
The Consumer Financial Protection Bureau’s current director, Richard Cordray, recklessly ignores the due process protections that have been deeply rooted in our American legal system for centuries. This abuse may generate headlines, but it does not achieve justice. The Dodd-Frank Act grants him incredibly broad powers to regulate consumer credit products, yet Cordray continues to ignore the law and the intent of Congress by making end-runs around existing laws.
In the legal decision that declared the agency’s structure unconstitutional, the court found that Cordray unilaterally reinterpreted the law and then essentially created his own law after the fact. In addition, the court said Cordray ignored the statute of limitations to justify imposing a huge fine on an American business. This is an outrageous violation of due process rights.
Another example of the agency’s violation of due process relates to its use of “unfair, deceptive or abusive acts and practices,” or UDAAP, authority. Citing the largely undefined and amorphous UDAAP is CFPB’s go-to claim, leaving plenty of wiggle room for the director to decide what the law says and means. The agency could provide clarity by writing rules to define UDAAP further, but refuses. Thus, CFPB deprives legally operating businesses of the information they need to follow the law when developing new products and services that benefit consumers. Given that Cordray was already found to have ignored legal protections in order to impose a multi-million-dollar fine on a company, clearly this UDAAP authority is a legitimate cause of concern.
Republicans and Democrats agree that the laws on the books must be enforced. Where we disagree is over whether unelected bureaucrats should have the power to write new laws. As currently structured, the CFPB has virtually unlimited power to do just that — and is harming consumers with higher costs and less access to financial products and services as it does.
The changes we seek through the Financial CHOICE Act will truly make the CFPB the “cop on the beat” its supporters claim they want. Cops don’t write the laws; they investigate and enforce the laws — and they don’t serve as cop on the beat, judge, jury and Congress all rolled into one.
It would be far easier to secure criminal convictions if the Constitution didn’t require probable cause for warrants or protect Americans against unreasonable search and seizure, but few would argue that justice would be served. In the same way, the success of the CFPB must be judged both on how it protects consumers and on whether it follows the Constitution.
Source: House Financial Services Committee

The latest speed bump for the agency came on April 21, when a federal judge ruled that the Bureau had no legal standing in its efforts to demand that the Accrediting Council for Independent Colleges and Schools turn over records detailing its review and accreditation criteria aimed at for-profit college chains.

Also in the mix: the latest iteration of the Financial CHOICE Act, a Republican led effort to repeal and replace sections of the Dodd-Frank Act. The CFPB has a starring role in the legislation.

If approved, as currently crafted by Rep. Jeb Hensarling (R-Texas), the director of the CFPB would be fireable at will, rather than for cause only. The Bureau’s supervisory authority would be eliminated, leaving it as only an enforcement agency. While retaining the ability to enforce consumer protection laws, only, it would no longer be able to pursue cases under existing UDAP (Unfair, Deceptive, or Abusive Acts and Practices) authority.

The Bureau’s consumer complaint database would no longer be made public, although it could be shared with other agencies. Market monitoring would be eliminated.

In an opinion piece published on the House Financial Services Committee’s website, Hensarling and Rep. Roger Williams (R-Texas) reiterated the conservative case against the Bureau.

“It is the most powerful and least accountable Washington bureaucracy in history and a perfect example of the political left’s dangerous belief that the ends always justify the means,” they wrote. “While the agency has an important mission, it was purposefully designed by Democrats to evade checks and balances that apply to other regulatory agencies, including those responsible for consumer and investor protection. Its bizarre, unique, and defective design is exactly why a panel of federal judges ruled that the CFPB is structurally unconstitutional.”

“In its present form, the agency is an affront to the Constitution, to checks and balances, and to due process,” they added.

Another example Hensarling and Williams cite of the agency’s violation of due process is connected to its use of “unfair, deceptive, or abusive acts and practices,” or UDAAP, authority. “Citing the largely undefined and amorphous UDAAP is [the] CFPB’s go-to claim, leaving plenty of wiggle room for the director to decide what the law says and means.,” the two representatives wrote. “The agency could provide clarity by writing rules to define UDAAP further, but refuses. Thus, [the] CFPB deprives legally operating businesses of the information they need to follow the law when developing new products and services that benefit consumers.”

In some respects, the CFPB’s battles threaten to become counterproductive for critics, says Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research, a free-market think tank.

“Next year, President Trump will be able to appoint his own long-term appointee, so you would think that the Democrats wouldn’t want that to happen because that person’s term will outlast the next presidential year,” she says.

She does think, however, that the move to a commission-based structure would accomplish “some good things and provide checks and balances.”

A full-throated defense of the agency came during the House Financial Services hearing on the CFPB’s constitutionality.

“To start, the CFPB’s leadership structure—namely, the fact that it is led by a single director removable only for cause—is consistent with the text and history of the Constitution, as well as Supreme Court precedent,” said Brianne Gorod, chief counsel of the Constitutional Accountability Center, a progressive think tank (and counsel in PHH Corp. v. CFPB to current and former members of Congress who support the Bureau).

Although the original idea for the Bureau was to create a financial products counterpart to the Consumer Product Safety Commission, “the five-member structure of that Commission had been shown to seriously hamper its effectiveness,” she added. “The Government Accountability Office, for example, concluded that this structure fostered instability, delay, and a lack of independence. The financial crisis, however, showed the need for a regulator that could respond promptly and decisively to protect consumers from emerging threats.”

A single-director model “promised to avert another devastating failure to keep pace with the changing financial system,” she said.