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The CFPB Serves Consumers, Not Bankers

Wednesday, May 24, 2017

Has the near ruination of the U.S. economy in 2008 receded from our collective memory? Have we forgotten about the $19.2 trillion in lost household wealth? Or the nearly nine million jobs that went south?

These questions will provide a backdrop for the U.S. Court of Appeals for the D.C. Circuit as it hears arguments tomorrow on whether it is constitutional for the Consumer Financial Protection Bureau (CFPB) to have a single director who can be removed by the President only for cause.

Last October, two judges on a three-judge panel of the D.C. Circuit held that the CFPB’s leadership structure was unconstitutional, saying too much power was concentrated in a single administrator. This ruling would have allowed President Trump, once he took office, to remove the CFPB director at will.

The CFPB asked the full D.C. Circuit to re-hear the case, and others – including leading members of Congress who helped create the CFPB – filed briefs urging the court to do so.  Those members of Congress hadn’t forgotten the devastation caused by the financial crisis of 2008, nor had they forgotten what had led to that devastation: the failure of the existing “regulatory structure to keep pace with the changing financial system.” As a Senate report explained, the old system for protecting consumers divided responsibility “between many federal regulators, whose mission [was] not focused on consumer protection…. The fragmented regulatory structure also resulted in finger pointing among regulators and inaction when problems with consumer products and services arose.”

Congress created the CFPB to address that problem, and gave it the structure it did—a single director who could be removed only for cause—because it concluded that this structure would enable the new agency to most effectively fulfill its mission.  It would help ensure that the CFPB was both free from industry influence, and able to act quickly in response to new threats to consumers.

Since its inception, the CFPB has been remarkably successful. According to the CFPB, it has handled a million complaints, and its actions have resulted in nearly $12 billion in relief for more than 27 million harmed consumers. Last year, the CFPB successfully extracted a record-breaking $185 million fine from Wells Fargo Bank for opening 1.5 million fraudulent accounts without consumers’ knowledge.

The CFPB’s success so far may well explain why it is a target of the banking, mortgage, and insurance industries, not to mention their Republican cheerleaders in Congress. Legislative foes have introduced a legion of bills and amendments to weaken the CFPB’s capacity to protect consumers, while big business has pursued the same goal in the courts. Indeed, the challenge to the CFPB’s leadership structure may represent less a concern for constitutional principles than a not-so-subtle attack on the agency’s ability to operate independently from industry influence, as well as its ability to get results.

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After all, the CFPB is plainly constitutional. When the Framers drafted the Constitution, they gave Congress great flexibility to determine how best to shape the federal government, including whether to give certain officers some independence from the President. Consistent with that history, the Supreme Court has repeatedly held that Congress may limit the President’s authority to remove at least certain officers. Indeed, more than 80 years ago, the Supreme Court upheld a removal provision identical to the one that governs the CFPB director.

Moreover, the CFPB, despite the claims of its opponents, is hardly unprecedented. Many health and safety regulators are led by single administrators, and the CFPB is not the only agency whose administrator is removable only for cause. The CFPB’s power is also checked in numerous ways, as it is subject to a variety of statutory restrictions, including some that other banking regulators don’t face. 

To be sure, the CFPB has significant authority over the consumer financial services industry, but that was by design.  As noted earlier, Congress had seen all too clearly the devastation that could result when financial regulators lacked the ability to protect consumers. Even well-informed and educated people are easily confused by the risks and payoffs of complex financial transactions – to say nothing of those with less financial savvy. The late Edward Gramlich – a former Federal Reserve governor who foresaw the home mortgage crisis – was asked why the riskiest loans are sold to the least sophisticated borrowers. He said, “the question answers itself. The least sophisticated borrowers are probably duped into taking these products.”

As the 2008 financial crisis demonstrated, systemic abuses against some borrowers can have devastating effects on everyone. America needs a truly independent financial regulatory authority that is insulated from industry influence and can work on behalf of individual consumers and the U.S. economy as a whole.

With a billionaire in the White House and Wall Street plutocrats scattered throughout the cabinet and regulatory agencies, an independent financial watchdog is more important now than ever.