While virtually all federal agencies will soon see a change in leadership when President-elect Trump enters the White House, the future of the Consumer Financial Protection Bureau and its Director remain in question. In an effort to work around those legal concerns, the banking industry has called on Congress to legally change the structure of the CFPB, and to roll back a number of the CFPB’s recent and pending regulations on banks and lenders.
The financial industry’s biggest problem with the CFPB — aside from the fact that the Bureau exists in the first place — is its structure. Rather than have a three- to five-member commission running the agency, it has a single Director. But unlike most agencies with one chief decision-maker at the top, the CFPB Director can not be readily removed from office by the President. Instead, the White House must show cause for a CFPB Director to be fired before the end of his or her five-year term.
A recent federal appeals court ruling put this structure in doubt, with a split 2-1 appellate panel concluding that this structure is unconstitutional as it puts too much authority into the hands of one person who is not immediately answerable to the President.
The CFPB has petitioned for a re-hearing of this matter by the full appeals court. The Bureau argues that there is nothing in the Constitution or in any law that mandates the structure of independent agencies. Additionally, there are other agencies — the Social Security Administration, the Federal Housing Finance Agency, and the Office of Special Counsel — with nearly identical leadership structures that have never been deemed unconstitutional.
If the judges do agree to the re-hearing, it’s believed by many that CFPB Director Cordray would be protected from dismissal pending the outcome of that review. Though some legal experts disagree, arguing that Trump may indeed be able to fire Cordray while the appeal is pending.
To put an end to the question for good, a coalition of bank industry trade groups — the Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, and the National Association of Federal Credit Unions — have sent a joint letter [PDF] to Senate Majority Leader Sen. Mitch McConnell (KY), Minority Leader-elect Sen. Chuck Schumer (NY), and members of the Senate Banking Committee, calling on Congress to change the law to restructure the CFPB into a multi-member commission.
“The current single director structure leads to regulatory uncertainty for consumers, industry, and the economy,” explains the letter. “In contrast, a Senate confirmed, bipartisan board or commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement over financial institutions that is more in keeping with other financial regulators.”
The letter also asks lawmakers to use their authority under the Congressional Review Act to roll back a number of recent and pending CFPB regulations.
The Review Act is a 1996 law that allows Congress to undo recently finalized major regulations. After a new rule is set by an agency, lawmakers have a window of time to raise objections to the rule and issue a joint resolution of disapproval. If approved by the President, that resolution rolls back the regulation.
Members of Congress have tried a number of times to use the Review Act to scuttle new regulations, but it’s only been used successfully once in its two decades of existence. The banking industry is hoping that — with Congress and the new White House apparently on the same page with regard to light-touch regulation — lawmakers will use this authority to halt CFPB regulations on forced arbitration, small-dollar loans, debt collection, and prepaid cards.
The bankers’ letter comes on the heel of legal briefs filed in support of the CFPB by both lawmakers and consumer advocates, who argued that the Bureau’s structure — as created in the 2010 Dodd-Frank financial reforms — was intended to shield the agency from industry bullying and political whims.
“This structure allows the Bureau to make decisions that protect consumers — even when those decisions are opposed by intense lobbying,” explained the advocates.
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