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June 23 2017

A Modest Proposal to Rein in the Powerful Consumer Financial Protection Bureau

by Charlotte Hays

In an excellent piece at NRO, Washington lawyer and writer Ronald L. Rubin explains why Congress needs to rein in the powerful Consumer Financial Protection Bureau more than the CFPB needs the right to run roughshod, virtually unchecked, over American businesses.

Like many Washington institutions, the powerful CFPB, which exercises supervisory authority over financial institutions, started as a more modest idea than it has become. Rubin writes:

While the CFPB was not essential to the goal of preventing economic crises, a modest federal agency dedicated to curbing financial-industry fraud, like the one Senator Elizabeth Warren first advocated as a law professor in a 2007 article, might have provided welcome enforcement of consumer financial laws that had been neglected by state agencies and solvency-focused bank regulators.

Instead, the unchecked Democrats, arguing that only a regulator independent from politicians could protect consumers, created a huge agency with guaranteed funding through Federal Reserve Bank profits, led by a single director who could be fired only for cause during a five-year term.

The CFPB was given jurisdiction over 18 laws and authorized to assess massive fines for subjectively determined “unfair, deceptive, and abusive acts and practices.” What followed has been Washington’s version of the famous Twilight Zone episode in which a telekinetic child terrorizes adults.

Republicans propose eliminating CFPB's supervisory authority, which is what allows it to terrorize financial institutions, at enormous cost to the taxpayer. Rubin explains:

Supervision is different from investigation, in which the government subpoenas documents and interviews witnesses based on suspected wrongdoing. With supervisory authority, examinations are conducted on-site at the regulator’s discretion. Supervisory authority is very intrusive — basically a permanent search warrant — and typically limited to industries where malfeasance can cause catastrophic harm. The only activity with such risk overseen by the bureau is mortgage lending, which is already supervised by bank regulators. Much of the territory the CFPB now covers was previously handled by the Federal Trade Commission, which lacks supervisory authority.

The CFPB expends more financial and human resources on supervision than on any other agency function. Conducting on-site examinations requires expensive regional offices and travel costs. The Supervision and Consumer Response offices are the bureau’s most poorly managed, generating
 

Despite the enormous expenditures, the CFPB failed for five years to prevent Wells Fargo from opening accounts in the names of customers, who knew nothing of these accounts. It was left to the Los Angeles Times to uncover the scandal. Some job of protecting consumers!

The CFPB has operated as if were above the law, which in a way it has been, since the director is almost fireproof. Rubin suggests that it is time for this to stop:

Ironically, Congress needs supervisory authority over the CFPB much more than the CFPB needs supervisory authority over businesses. For years, the House Financial Services Committee has requested and subpoenaed internal documents in a futile attempt at oversight. Without the threat of budget cuts, the CFPB has been free to withhold embarrassing evidence and operate in secrecy.

On June 6, 2017, the House committee published a staff report describing obstruction of its Wells Fargo investigation and threatening to charge CFPB director Richard Cordray with contempt of Congress. Cordray used to ignore such threats, but since the election he must avoid giving President Trump obvious cause to fire him.

Cordray’s June 14, 2017, rebuttal letter to committee chairman Jeb Hensarling demonstrated the CFPB’s favorite stonewalling tactic. Cordray’s narrative leaves little doubt that the bureau responded to the committee’s document requests and subpoenas by sending hundreds of pages of irrelevant documents and then offering to schedule a bipartisan briefing for committee staffers.

The Republicans replied that a briefing would be welcome once the CFPB produced the requested documents. A few cat-and-mouse e-mail exchanges went nowhere. Cordray concludes the letter by proclaiming that the always-cooperative bureau provided thousands of documents and offered bipartisan briefings, but was snubbed.

. . .

Transparency would not weaken the CFPB’s independence, but that independence makes traditional legislative oversight ineffective. The Republicans’ reforms should include giving Congress supervisory authority over the CFPB.

Forbes had a good article this spring on the ins and outs of firing Mr. Cordray.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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