Understanding Gen Z: A Comprehensive Look at America’s Youngest Adults. Download
Report: Understanding Gen Z. Download
Five years ago, Congress created the CFPB, and today, its record speaks for itself. The agency has returned more than $10 billion to consumers as the result of its supervision and enforcement activity. It has processed more than 650,000 complaints from consumers who have been wronged by financial institutions. Its oversight ensures that the worst pre-crisis market practices will not come back to cripple families once again. That sounds like a track record that Congress should be proud to stand behind.
Yet some members of Congress have decided to use the CFPB’s anniversary as an opportunity to undermine the agency’s work. Rather than directly challenging the CFPB’s work, which is wildly popular with the American public, they propose administrative “reforms” that sound benign, but would significantly reduce the agency’s effectiveness and could even lead to its demise. The two main changes proposed would alter CFPB’s funding and leadership structures.
Currently, the CFPB is directly funded by the Federal Reserve, with a budget ceiling on how much it can spend, but Congressional Republicans have suggested that it should be funded through the Congressional appropriations process instead. The appropriations process—which has been supremely dysfunctional in recent years—is highly political and responsive to special interests, and subjecting the CFPB to it would put its independence in jeopardy. At best, giving Congress authority over the CFPB’s budget could result in loopholes in consumer protection for members’ favored financial institutions or even for dangerous consumer products, and at worst, it could cripple the agency by starving it of funds entirely.
If CFPB’s funding independence were changed, it would be the only major bank regulator without independent funding. And when bank regulators are subject to appropriations—as is the case with the Commodity Futures Trading Commission, or CFTC—we see the consequences through partisan bickering, industry influence, and limited effectiveness.
The other attack masquerading as reform is the proposal to convert the agency’s single director position to a commission. Commissions regularly suffer from decision-making stalemates when conflicting interests impede strong action. We see this over and over again with board-governed financial regulators like the Securities and Exchange Commission and the CFTC, and with other regulators that affect consumers, such as the Federal Trade Commission and Federal Communications Commission.
One example of the effectiveness of a single-director agency is that the CFPB has been remarkably successful in finishing its Dodd-Frank required rulemakings in a timely manner, when agencies headed by commissions have in some cases missed their deadlines by years. Commissions also increase gridlock when the Senate refuses to confirm appointees, as we’ve seen with the frequently-hobbled National Labor Relations Board and the Federal Election Commission.
The CFPB has already demonstrated its accountability to Congress, with senior officials testifying before Congress more than 50 times since its inception—more than any other bank regulator. The watchdog arm of Congress, the Government Accountability Office, audits it annually, and it is subject to supervision by an independent Inspector General. The CFPB’s rulemakings are subject to the same administrative procedures as other agencies and, unique among financial regulators, the agency is required to take comments from small businesses before proposing a rule. Perhaps most critically, the other financial regulators can also overturn CFPB rules if they feel the rules threaten a bank’s safety.
In an age where Americans have become cynical about the ability of their government to work on their behalf, the CFPB stands as a rare example of an agency that consistently and effectively works for the American consumer. In a recent poll, 85 percent of Democrats, 74 percent of independents, and 66 percent of Republicans were all in favor of the CFPB’s mission. Only 17 percent agreed with a statement that the agency is “out of control.”
Weakening the CFPB under the auspice of increasing its accountability is a step backwards to the days before the financial crisis, when lenders sold toxic products in the open that only led borrowers to failure. These “reforms” certainly don’t serve the public interest. Those who propose changes to the Bureau should have to explain whose interests they are really protecting.
Joe Valenti is the Director of Consumer Finance at the Center for American Progress. David Sanchez is a Policy Analyst for Housing and Consumer Finance at the Center for American Progress.