Is the Consumer Financial Protection Bureau the most powerful federal agency ever? That’s debatable

Then-President Obama leads Elizabeth Warren and Richard Cordray to the White House Rose Garden in 2011 to announce Cordray's nomination to be the first director of the Consumer Financial Protection Bureau
(Michael Reynolds / EPA)

Rep. Jeb Hensarling welcomed the new director of the Consumer Financial Protection Bureau, a fellow Republican, to a hearing this month in the same way he did the former Democratic holder of the job — by accusing him of wielding near-dictatorial authority.

“When Richard Cordray was director of the CFPB, I maintained it was perhaps the single most powerful and unaccountable agency in the history of the Republic,” said Hensarling (R-Texas), chairman of the House Financial Services Committee and an ardent critic of the bureau.

“Now that Mick Mulvaney is acting director, I still maintain that the CFPB is the most powerful and unaccountable agency in the history of the Republic,” he said.

Republican criticism of the agency, created by the 2010 Dodd-Frank Act in the wake of the Great Recession, has focused on the bureau’s unusual structure and independence: It is led by a single director who can be dismissed only by the president “for cause” and does not have to ask Congress for money, receiving funding directly from the Federal Reserve.


But the GOP charges appear somewhat exaggerated, even if — as supporters acknowledge — the powerful agency pushes the bounds of bureaucratic independence.

Although the consumer bureau’s structure is atypical, it is not unprecedented. In fact, what is unprecedented is a key check on the bureau’s power that often goes unmentioned: the ability of a panel of other financial regulators to invalidate the agency’s rules.

And despite Republicans frequently declaring that the bureau is unconstitutional, a recent federal appeals court ruling upheld the bureau’s structure.

Former Rep. Barney Frank (D-Mass.), who co-authored the law establishing the bureau, called the Republican criticisms “nonsense” driven by politics.


“The very notion that the government has to have a special agency dedicated solely to preventing private entities from hurting the consumer goes against their basic doctrine that government is not the answer to the problem, government is the problem,” Frank said.

The bureau’s existence has been a flashpoint between Democrats and Republicans since it was created. The controversy has boiled over in recent months after the first director, Richard Cordray, a Democrat appointed by President Obama, stepped down last fall.

President Trump appointed Mick Mulvaney, director of the White House Office of Management and Budget, to serve as acting director in November. The move outraged Democrats and consumer advocates.

One reason was that the bureau’s deputy director, Leandra English, had been elevated by the outgoing Cordray to serve as the temporary chief. She is pursuing a legal challenge.


Mulvaney, a former Republican congressman, also has drawn ire because he has been an ardent bureau critic. Since taking over, he has altered the bureau’s mission statement to make the top priority “identifying and addressing outdated, unnecessary, or unduly burdensome regulations” has and publicly declared that the agency no longer would “aggressively push the envelope” to protect consumers.

Cordray had used the bureau’s power aggressively to take enforcement actions against banks, providing consumers with about $12 billion in refunds and debt relief from financial institutions. Mulvaney had not taken a single enforcement action during his tenure until this month, when the CFPB joined with the Office of the Comptroller of the Currency to fine Wells Fargo & Co. $1 billion for multiple consumer abuses.

Mulvaney has infuriated Democrats and consumer advocates because he still reports directly to Trump as White House budget chief and has been outspoken about reducing the bureau’s authority, including subjecting its funding to the congressional appropriations process and making the director subject to dismissal by the president for any reason.

Mulvaney further riled bureau supporters Tuesday by telling a banking group that he would like to cut off public access to the bureau’s online database of consumer complaints and suggested the industry donate to members of Congress to convince them to weaken the agency’s authority.


“Mr. Mulvaney’s very presence at the consumer bureau compromises the critical independence of the agency, which was specifically designed by Congress to be an independent watchdog for America’s consumers,” Rep. Maxine Waters (D-Los Angeles) said at the House Financial Services Committee hearing on April 11.

The Obama administration and Democratic congressional leaders crafted the consumer bureau — originally the brainchild of Sen. Elizabeth Warren (D-Mass.) when she was an academic — to be as independent from the White House and Congress as possible.

Before the financial crisis, laws on mortgages, credit cards and other products were enforced by several regulatory agencies that made consumer protection a secondary priority to the safety and soundness of banks.

Congress gave the Fed the power to enact rules to protect consumers from unscrupulous mortgage lending in 1994. But it wasn’t until 14 years later, after risky subprime loans inflated a housing bubble that burst triggering the Great Recession, that the Fed adopted rules prohibiting unfair, abusive or deceptive lending practices.


Democrats and consumer advocates argued that consumer protection authority should be consolidated in the new bureau and that it needed independence to prevent financial industry lobbyists from using political pressure to hinder its work.

It wasn’t an unprecedented move. Financial regulators generally are more independent than others for the same reason.

Most of those agencies — including the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. — also are funded outside the appropriations process, often through fees and assessments, according to a review last year by the nonpartisan Congressional Research Service.

Five-year terms with Senate confirmation for heads of financial regulatory agencies are common, meaning they can overlap presidential administrations. The regulators also “typically do not serve at the pleasure of the president” and most “may be removed only if a higher ‘for cause’ threshold is met,” said the report from the CRS, known as Congress’ think tank.


“Congress has granted federal financial regulators independence in ways obvious (‘for cause’ removal, self-financing) and subtle (exemption of agency testimony and budget requests from OMB review),” the report said.

“No two independent agencies have exactly the same structure,” it continued. “It might be impractical to assess the relative levels of independence among agencies on the basis of the number or type of characteristics of independence an agency has.”

Still, Todd J. Zywicki, a George Mason University law professor and coauthor of the 2014 book “Consumer Credit and the American Economy,” said the consumer bureau stands out because of how it combines the independence provisions.

While the Fed and FDIC are funded outside of the appropriations process, they are headed by multi-member commissions that diffuse the power of the chairperson. The Comptroller of the Currency is a powerful, single bank regulator whose agency is self-funded, but that person can be removed by the president for any reason.


“In American history, we’ve never seen, in my view, such a combination of power and unaccountability in any agency that has been constitutional,” Zywicki said of the consumer bureau.

Bureau supporters note that the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, also has a single director who can be fired only for cause and is funded outside of the appropriations process.

It’s likely that the Supreme Court will have the final say on the consumer bureau’s constitutionality.

In January, the U.S. Court of Appeals for the District of Columbia ruled 7-3 that the consumer bureau is constitutional. The decision reversed a 2-1 ruling in 2016 by a three-judge panel of the court that found that the bureau’s structure violated the Constitution’s separation of powers because it limited the president’s authority.


Frank noted that Dodd-Frank gives the Financial Stability Oversight Council, a panel of regulators headed by the Treasury secretary, the ability to freeze or veto any consumer bureau rule by a two-thirds vote if the rule is deemed to risk the safety and soundness of the U.S. banking or financial systems.

“They’re disproportionately worried about an agency that is much less powerful than other banking agencies,” Frank said of bureau critics.

“They hate it, but they know it’s popular, therefore they come up with procedural arguments,” he said. “It’s a way to attack the agency without having to deal with the substance.”

Critics of the bureau said the Oversight Council has to overcome high hurdles to veto a rule and can’t quash enforcement actions. But Congress also has the power to overturn regulations from the bureau, as it can with other agencies, for any reason by a simple majority vote.


Lawmakers did that last year when they killed a bureau rule that would have allowed Americans to file class-action suits against banks instead of being forced in many cases into private arbitration.

“It’s not a constitutional issue. It’s an ideological issue for them,” Frank said of bureau opponents. “Frankly, they don’t want there to be a CFPB at all.”

Twitter: @JimPuzzanghera