One thing that supporters of the rule of law should be thankful for this Thanksgiving is that last month a federal court made the Consumer Financial Protection Bureau (CFPB) accountable to the President.
As I told the Heartland Institute’s Ben Johnson after the ruling:
Accountability and separation of powers are two basic principles of the American republic. One major component of this is oversight by the elected branches: The president is accountable for the actions of executive agencies, and Congress can examine their activities and, if necessary, restrict their budget.
The restoration of accountability to the CFPB has been a major thrust of CEI’s lawsuit against the Bureau. However, while the new structure imposed by the court goes some way to solving this problem, the job has not yet been completed. As I also told Heartland:
Congress’ lack of control over the CFPB’s budget still raises serious constitutional questions. Congress should also reexamine the wisdom of giving CFPB power over such an extremely wide range of consumer and financial issues.
Unlike other executive branch agencies, the CFPB currently obtains its budget directly from the Federal Reserve rather than through the appropriations process. This means that Congress is unable to exercise the power of the purse in order to impose spending discipline on the agency.
That discipline is urgently needed. Over the past few months, the Bureau has exercised its power to issue several rules that will devastate industries big and small, including ones like the vehicle supplemental insurance business that the CFPB not only has no business regulating, it was actually forbidden by Congress from regulating.
Examples of these rules include:
- A ban on compulsory arbitration agreements in financial services, which would raise costs to the consumer and preclude a quick and effective dispute resolution procedure, in order to allow more class actions that predominantly benefit trial lawyers rather than consumers. The rule would also harm innovation in the growing financial technology (FinTech) field.
- A rule sharply restricting short-term lending of various sorts. As our colleague Hilary Miller found, this rule would cut off credit avenues for the poorest in society, who have the fewest credit options as it stands. The rule would also severely affect the voluntary protection product market in new vehicle purchases, stopping people from having access to a suite of popular products that provide peace of mind when people make their largest non-real estate investment.
- Another rule on disclosure of supervisory information, which the ACLU argues amounts to prior restraint on speech. The bill would allow the CFPB to share information with foreign regulators and others who could use it to mount “fishing expeditions” against American companies.
- New rules on prepaid cards that will also affect digital wallet services like Venmo, and will simply raise prices and reduce options in these new and popular markets, according to Consumers' Research Executive Director Joe Colangelo.
If the new President is able to help Americans who will find their options reduced and their costs increased by these rules—a prospect that is particularly harmful to the poor—there will be good reasons to give thanks.
Unfortunately, the CFPB, eager to retain its unaccountable power, has appealed the decision. If the court sticks to its interpretation of the separation of powers, however, CFPB director Richard Cordray might be the first to hear the words, “You’re fired” come January 20.