Court Ruling Is an Unexpected Win for the CFPB

The recent decision by the U.S. Circuit Court of Appeals for the District of Columbia finding the Consumer Financial Protection Bureau’s structure unconstitutional has been hailed as a victory and vindication for opponents of the agency. In reality, the court decision has far more bark than bite. That’s because the decision’s practical impact on the CFPB is underwhelming at best and nonexistent at worst.

Its’s true that the court decision, if it stands, will mean that the CFPB director can be removed by the president for any reason or no reason at all instead of “for cause.” This changes very little, given how unlikely it is that a sitting CFPB head would remain at the agency under a new president of a different party. The decision also did nothing to affect current CFPB rulemakings and enforcement actions, which remain valid.

Hoping to turn their loss into a win, some Republicans have incorrectly suggested that the ruling renders the CFPB subject to regulatory review by the Office of Information and Regulatory Affairs, a small but powerful White House office that reviews and clears “economically significant” regulations from executive agencies, but not independent agencies such as the CFPB.

Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, sent a letter to the CFPB asking when it would begin sending regulations to OIRA for review, since the court had converted the CFPB from an independent to an executive agency.

The CFPB should ignore Hensarling’s letter because his claims are both incorrect and premature. They are incorrect because the ruling did absolutely nothing to change the underlying status of the CFPB. And they are premature because the court decision is not yet final and could be appealed by the CFPB. Indeed, it appears that’s exactly what the CFPB plans to do.

The CFPB can appeal to the full D.C. Circuit panel en banc or to the Supreme Court. The full D.C. Circuit panel is the most likely venue, given the potential for a tie at the Supreme Court. In a separate court filing immediately after the D.C. Circuit court’s decision, the CFPB stated that the decision “was wrongly decided and is not likely to withstand further review.

Even if the decision is upheld on appeal, current law still exempts the CFPB from complying with OIRA review. The Paperwork Reduction Act continues to list the CFPB explicitly as an independent agency and the court opinion did nothing to change that law. Moreover, independent agencies listed in the PRA are exempt from OIRA review by the very terms of the executive orders authorizing and governing OIRA review in the first place.

Thus, to force the CFPB to undergo OIRA review, Congress would have to pass a new law to remove the CFPB from the list of independent agencies in the PRA. It wouldn’t be difficult for an unscrupulous member of Congress to sneak a policy rider that accomplishes this into must-pass legislation, such as appropriations. CFPB supporters should be keenly aware of the threat that a potential rider could pose to the agency’s independence.

Ironically, the court decision deals a blow to congressional efforts to expand OIRA review to all independent agencies, including those structured as commissions, because the ruling maintains that multi-member commissions are fully independent of the executive branch. The D.C. Circuit’s ruling has validated concerns raised by multiple independent agency heads, particularly those from financial agencies, that expanded OIRA review would fundamentally undermine their independence from the executive branch and would amount to a backdoor attack on Wall Street regulatory reform.

Setting aside the fact that the CFPB is not subject to OIRA review, it is worth contemplating the policy downside of putting the CFPB under OIRA’s thumb. The CFPB has been one of the most effective and efficient watchdogs since its inception. While most other agencies experience debilitating and paralyzing delays when developing the “major” regulations that benefit and improve the lives of Americans, the CFPB has been a model for protecting consumers.

The agency has put in place new rules to police the kind of unscrupulous mortgage lending that led to the financial crisis and is finalizing rules to block predatory lenders and curb forced arbitration “rip-off” clauses that keep consumers from holding companies accountable in court. On the enforcement side, the CFPB has returned an impressive $11 billion to consumers by holding financial companies that engaged in manipulative, abusive or deceptive practices accountable. In short, the CFPB has been the epitome of good government.

OIRA, on the other hand, has recently been plagued by dysfunction and secrecy. While OIRA is required to review all regulations within 90 to 120 days, the office has routinely missed those deadlines by months, and in some cases, years. OIRA has reduced its delays somewhat in the past few years, but significant delays persist.

Meanwhile, OIRA has suffered from serious transparency issues, especially with regard to the reasons for those delays. The Government Accountability Office has issued a series of reports recommending 25 areas where OIRA should enhance transparency to the public. To date, OIRA has acted on only nine of those recommendations, ignoring the rest.

OIRA officials frequently claim that their agency need not be transparent because it’s part of the White House deliberative process. But this makes little sense given that OIRA review regularly results in substantive changes to rules OIRA reviews. If any other agency made the same sorts of changes, it would be required by law to disclose those changes. It is hard to credit OIRA with improving a rule if the agency won’t show its work or simply sits on a rule for years with no explanation of its actions.

If ever there was a government agency in need of reform, it’s OIRA, not the CFPB. Imposing OIRA’s dysfunction and secrecy onto the CFPB’s rulemaking process might be a win for big banks on Wall Street, predatory lenders and ideological opponents of regulation, but it would certainly be a loss for American families and consumers.

We can’t let that happen.


Gilbert is director of Public Citizen’s Congress Watch Division. Narang is the regulatory policy advocate for Public Citizen’s Congress Watch division.

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