Last Chance for the 115th: Bring Accountability to the Financial Regulators


This June here at OpenMarket we’ll be looking at what the 115th Congress, which began January 3, 2017 and runs through January 3, 2019, has accomplished so far and what might still be achieved for limited government and free markets before it’s over. Read more about the Competitive Enterprise Institute’s recommendations for legislative reform here

In CEI’s “Free to Prosper: A Pro-Growth Agenda for the 115th Congress,” my colleagues John Berlau and Iain Murray made the enduring recommendation of bringing accountability to the unaccountable Consumer Financial Protection Bureau. They aptly described the constitutional problems with the Bureau as follows:

The president cannot carry out his or her constitutional obligation to “take care that the laws be faithfully executed” because the president cannot remove the CFPB director except under limited circumstances. Dodd-Frank imposes a “for cause” standard for removal of the CFPB head. While this is normal for most independent agencies, the CFPB is unprecedented because it is headed by a single director, rather than by the multimember commissions that generally run independent agencies. Moreover, it draws its budget from the Federal Reserve, thus eliminating congressional oversight, and is subject to reduced judicial oversight because Dodd-Frank requires the courts to give extra deference to its legal interpretations.

So, as we near the end of the 115th Congress, is the CFPB any more accountable? The short answer is no. But the longer answer is more nuanced.

As is often the case with politics, no one could see how the things would play out for the CFPB under a Republican administration. The Bureau, established under the 2010 Dodd-Frank Act, was born and raised as an aggressive regulator under President Obama. But with newly elected President Trump promising to do a “big number” on Dodd-Frank, there was every likelihood that the CFPB would heavily reformed, if not abolished outright.

That promise never materialized. Congress passed a moderate but important package of financial reform bills earlier this year, but Senate Democrats refused to negotiate any changes to the Bureau, dashing hopes for reform. Judicial remedies have likewise been put on the backfoot, with the D.C. Circuit Court of Appeals ruling 7-3 that limiting the president’s ability to remove the CFPB director during his or her five-year term does not violate the president’s authority to appoint and remove executive branch officers. It is my opinion that the ruling is plainly wrong, and there may be other constitutional challenges in the near future that come to a different conclusion. But for now, the Bureau as structured survives.

The CFPB is still unaccountable to Congress, the president, and the American public. It remains far too powerful, with broad rulemaking, supervision, and enforcement powers over nearly every consumer financial product in the U.S. economy. But while the Bureau has changed little in structure, it has changed greatly in substance.

When the Obama-era director, Richard Cordray, suddenly resigned in November 2017, the Trump administration quickly installed the head of the Office of Management and Budget, Mick Mulvaney, as acting director—but not without controversy.  Now that Mulvaney has solidified his leadership at the CFPB, he is leading a significant transformation. He’s abolished duplicative departments within the Bureau, added additional ones to improve its rulemaking process, abolished the ideologically slanted Consumer Advisory Board, and sought to rethink the entire CFPB by seeking public comment on its internal operations. He has also thrown out dubious enforcement actions and sought to rewrite disastrous new regulations. There’s every likelihood that Mulvaney is only getting started. The Bureau is exploring ways to spur financial innovation through a regulatory sandbox, while as CEI has recommended in comments to the Bureau; Mulvaney can unilaterally change the CFPB’s internal structure drastically.

New leadership at the Bureau has brought some welcome changes to the infant agency. But the constitutional problems remain and must be dealt with. So is there a legislative future for CFPB reform? Conventional wisdom says that Democrats are not willing to negotiate, though this may be to their own detriment.

Imagine this not-improbable instance: The Trump administration is only able to successfully appoint a permanent CFPB director in late 2019 (leaving Acting Director Mulvaney free to run the Bureau up until that time). A Democrat then wins the presidential election in 2020. Because the CFPB director serves as the sole head for a 5-year term, only removable by the President “for cause,” a Democratic President would be stuck with a Republican CFPB director for the entirety of their administration. This would be an absurd outcome and a clear departure from how American government is designed to operate. But it would also clearly demonstrate the dire need to reform the structure of the Bureau.

So while structural changes may be beyond our current political horizon, the issue of CFPB reform won’t go away. Whether it be a Supreme Court case or a bipartisan consensus that the current system is unworkable, accountability to the Bureau will be brought eventually. Until then, Acting Director Mulvaney is bringing much needed reforms to the internal operations of the Bureau.

Read previous posts in the “Last Chance for the 115th” series: