House Financial Services Committee to hold hearing today on CFPB’s structure
WASHINGTON, D.C. – Consumers Union, the policy and mobilization arm of Consumer Reports, urged members of the House Financial Services Committee in a letter today to oppose efforts to weaken the Consumer Financial Protection Bureau (CFPB) by restructuring the agency with more bureaucracy or politicizing its budget through the congressional appropriations process.
The consumer group reiterated its support for the CFPB on the same day that the House Financial Services Committee’s Oversight and Investigations Subcommittee is holding a hearing at 10am on the CFPB’s constitutionality and structure.
“The CFPB has been an effective champion for consumers, winning billions of dollars in relief for Americans cheated by shady banking practices, predatory lending, and other financial scams,” said Pamela Banks, senior policy counsel for Consumers Union. “But the CFPB’s ability to protect consumers would be seriously undermined if financial industry lobbyists and their allies in Congress get their way. Congress should resist the pressure from industry opponents of the CFPB to muzzle this critical consumer watchdog.”
The CFPB was established as part of the measures passed by Congress in the wake of the 2008 financial crisis. The Bureau works to ensure consumers are treated fairly by establishing basic standards that banks and other financial companies must follow and by policing abuses in the marketplace. Since the CFPB opened its doors in 2011, it has won almost $12 billion in refunds and relief for an estimated 27 million Americans who’ve been defrauded by financial companies.
Congress deliberately created the CFPB with a single director who can only be removed for cause during a five-year term and independent funding to protect it from political pressure and banking industry interference. Now some lawmakers are arguing that this structure is unconstitutional and are proposing to turn the CFPB into a five-member commission and to control its funding through the congressional budget process.
Consumers Union’s letter points out that the U.S. Supreme Court has upheld the constitutionality of independent agencies headed up by directors who can only be removed for cause when Congress explicitly shields them from being removed by the president at will as it did with the CFPB. Having a single director enables the CFPB to respond more quickly and decisively to new and emerging threats to consumers. By contrast, multi-member commissions are prone to internal discord and excessive gridlock that can hamper their effectiveness.
Like other financial industry regulators, such as the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Reserve, the CFPB receives its funding independently from the congressional appropriations process. In the case of the CFPB, it receives a small percentage, subject to a statutory cap, of the Federal Reserve’s annual budget. Subjecting the CFPB to the annual budget process would threaten the stability of its budget and its ability to protect consumers, according to Consumers Union.
When the CFPB was first established, Congress put in place a number of measures to ensure it could be held accountable for its actions. CFPB officials regularly testify before Congress, submit reports and respond to congressional inquiries. In addition, CFPB rules are subject to the Administrative Procedures Act and can be challenged in court; the GAO performs annual CFPB audits; and an independent Inspector General reviews the agency’s activities to prevent and detect fraud, waste and abuse.
The Financial Stability Oversight Council – made up of other banking regulators – has the authority to veto any CFPB rule that it deems to interfere with the “safety and soundness” of the U.S. financial or banking system. No other federal banking regulator is subject to this kind of limitation. Finally, all of the CFPB’s proposed rules are subject to a cost-benefit analysis and the agency must explain what the economic impact of any proposed regulation will be and why less expensive alternatives won’t work.