President Obama will bypass Elizabeth Warren to lead the Consumer Financial Protection Bureau (CFPB) and instead nominate former Ohio attorney general Richard Cordray to the post.
The White House announcement on Sunday ends months of uncertainty about whether the President would accede to the demands of Warren’s steadfast supporters or acquiesce to staunch critics who vowed to block her Senate confirmation. With that matter now settled, public attention—and that of lawmakers, in particular—should focus on fixing the structural flaws that allow the bureau to exercise excessive regulatory powers without adequate accountability.
The President’s nomination of Cordray comes just three days before the bureau formally launches. But until he or another nominee is actually confirmed, the CFPB is statutorily barred from imposing new regulations. That does not mean the bureau is impotent, however. With hundreds of staff already in place and a budget of $500 million, the CFPB is busily compiling dossiers on most every type of financial firm and preparing enforcement actions under existing laws.
Warren was the chief architect of the CFPB and has spent the past year preparing for its launch as a “special aide” to the President and the Department of Treasury. Whether she, Cordray, or anyone else is director, the bureau will exert unparalleled powers, including consolidated and expanded regulatory authority over credit cards, mortgages, student loans, savings and checking accounts, and most every other consumer financial product and service. Essentially, all of Americans’ money falls under bureau purview unless it’s under a mattress.
The bureau’s sweeping powers is hardly the only problem. Because it 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. This budgetary independence limits congressional oversight of the agency. The CFPB’s status within the Fed also effectively precludes presidential oversight, while the Federal Reserve is statutorily prohibited from “intervening” in bureau affairs.
The bureau’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.
Bureau proponents deny any lack of accountability, claiming the CFPB can be overruled by the Financial Stability Oversight Council, which is composed of representatives from eight other financial regulatory agencies. However, the council’s oversight authority is narrow, confined by statute to cases in which CFPB actions would endanger the “safety and soundness of the United States banking system or the stability of the financial system of the United States.” Any veto of bureau action would also require the approval of two-thirds of the council’s 10-member board.
Nominating Cordray is the President’s prerogative, and he will surely be properly vetted by the Senate. But absent structural reform of the CFPB, consumers will begin to experience all too soon the consequences of this unchecked regulatory agency: fewer choices among financial products and services and higher costs for those that are available.
Senate Minority Leader Mitch McConnell (R–KY) and Senator Richard Shelby (R–AL), ranking Republican on the banking committee, have pledged to block any nominee for director until changes are made. It is a promise they should be held to by consumers across the nation.
