We shouldn’t have to declare independence from a federal bureaucracy, but here we are. Following arguments heard last week by the U.S. Court of Appeals for the D.C. Circuit, the constitutionality of the Consumer Financial Protection Bureau (CFPB) is rightfully being called into question.
A centerpiece of the 2010 Dodd-Frank Act, the CFPB was established with the stated intent of protecting Americans by carrying out federal consumer financial laws. Yet it also placed legislative, executive and judicial power in the hands of its director, Richard Cordray, who is entirely unaccountable to the democratic process.
As a result of its unchecked power, the history of the CFPB is one of repeated injuries, abuses, and absolute tyranny over the financial world. From harassing automobile loaners based on dubious claims about discrimination to regulating payday lenders out of business, this agency’s aggression has been on full display since day one.
Just how aggressive are we talking? The petitioner in the recently argued case, PHH Mortgage, brought the lawsuit against the CFPB when its director imposed a fine of $109 million, instead of the $6 million recommended by the bureau’s own administrative law judge.
The unbridled authority of the CFPB has resulted in similarly massive fines and increased compliance costs falling most heavily on community bankers and local financial institutions. These lifelines of small businesses are suffocating under ever-growing regulatory burdens.
What was intended to act as a consumer watchdog acts more like an attack dog, now seeking to shackle the free market at every turn.
The CFPB maintains an unchecked bureaucratic operation and unlimited budget, with authority wielded largely by its director. The Federal Reserve — not Congress — funds the Bureau as an independent agency, restricting Congress’s ability to rein in both agency abuse and wasteful spending. The power is centralized in Director Cordray, which does nothing to stop the abuses of power and an onslaught of one-size-fits-all regulations.
We know that absolute power corrupts absolutely, and the signs are there within this organization. It spent lavishly on a $216-million-dollar renovation of its headquarters, complete with a four-story glass staircase, two-story waterfall, and a sunken garden. And contrary to its mission of protecting average Americans, the bureau has a history of mistreating its own employees, with rampant reports of workplace discrimination, harassment and intimidation.
Perhaps it’s the CFPB, not its building that needs restructuring.
And even when it takes fighting consumer abuse as its prerogative, it tramples on the very consumers it is supposed to protect. For example, although the bureau says it wants to curb racial discrimination in auto loans, it uses dubious statistics to make its case, in some cases guessing ethnicity by last name and zip code. The CFPB’s auto loan regulations make it harder for everyone, regardless of color, to receive an auto loan.
It’s time to end the unaccountable reign of this federal bureau — and multiple bills in the House Financial Services Committee would start to do that job. Funding the bureau through Congress rather than the Federal Reserve will allow for Congress to enforce accountability, while appointing a five-member bipartisan committee will force it to consider smart, consensus-driven regulations. Even instituting cost-benefit analyses for new regulations will force the agency to see whether the regulations it issues are truly beneficial for the country.
These sensible reforms can ensure that Consumer Financial Protection Bureau truly protects consumers. As it operates now, the bigger question is who will protect Americans from it? We tried consolidating all that power in previous centuries, and it didn’t work for us. Instead, we got the Declaration of Independence.
And when it comes to the CFPB, we need that independence more than ever.