A House subcommittee on Wednesday approved legislation to modify the new Consumer Financial Protection Bureau (CFPB).
Spawned by the vast Dodd–Frank financial regulation statute, the CFPB (as originally structured) enjoys sweeping powers over all manner of consumer credit—without adequate accountability. Yesterday’s action is a welcome start to taming the CFPB, but more fundamental reforms are still needed.
The trio of bills endorsed by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit would replace the position of bureau director with a five-member bipartisan commission, enhance the authority of the Financial Stability Oversight Council to veto CFPB regulation, and withhold regulatory powers of the CFPB until a director is appointed by the President and confirmed by the Senate.
A bipartisan commission may seem less autocratic than a single director vested with bureau control. But the organizational structure is not the fundamental problem with the CFPB. The real problem is the lack of accountability and the virtually unconstrained power bestowed upon it under the Dodd–Frank statute.
Because the CFPB is ensconced within the Federal Reserve, its budget is not subject to congressional control. Instead, CFPB funding is set by law at a fixed percentage of the Fed’s operating budget. The CFPB’s status within the Fed also effectively precludes presidential oversight.
The CFPB’s 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.
More meaningful reform requires a funding mechanism that’s subject to congressional control. The undefined term abusive should also be stricken from the list of practices under CFPB purview. And the CFPB should be explicitly required to apply definitions of unfair and deceptive practices in a manner consistent with regulatory convention and case law.