Congress Must Reclaim Consumer Finance Bureau

Congress Must Reclaim Consumer Finance Bureau
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Government bureaucracies have a way of acquiring more rather than less power and resilience over time as people come to assume — because they exist — that everything they do serves legitimate and important public purposes. We forget, in other words, how we managed to get along without them.

Congress has been consumed in the past few months with a fight over the Export-Import Bank, which was created in 1934 and now persists and grows regardless of its merits. The special interests that came to dominate the agency still prop it up eight decades later despite congressional opposition to many of its activities. But while Congress is in a standoff over this 80-year-old institution, it should be even more alarmed that it’s allowing another bureaucratic monster to mature — one that’s unchecked by Congress, questionably constitutional, scandal-plagued, and even more prone to capture by special interests. 

The Consumer Financial Protection Bureau, the mammoth new financial regulator created by the Dodd-Frank law at President Obama’s urging, has dramatically extended its powers over the past five years through rule writing and an expansive interpretation of its mandate.

It’s critical that Congress pass CFPB reform before the 2016 elections to rein in the agency’s excesses, bring it under Congress’s control, and refocus its mission. If Congress does not reassert its authority over the CFPB now, when there is political attention on the regulator and Republicans hold majorities in both houses of Congress, the agency will only become more firmly entrenched and ungovernable.

Democratic presidential candidate Hillary Clinton clearly understands these stakes. This week she sent a letter to House Democrats urging them to oppose reforms Republicans have offered — some of which have earned bipartisan support in the past. Mrs. Clinton is no longer a senator, of course, and as a candidate for president she’s unlikely to be interested in restoring the balance of powers in Congress’s favor. But after five years watching the bureau in action, legislators in both parties should recognize the danger of allowing the CFPB to continue unchecked.

The bureau as currently formulated is a direct challenge to Congress’s power of the purse, since it operates outside the annual appropriations process. Instead, the CFPB is funded out of a fixed percentage of the Federal Reserve’s budget — which is itself determined at the Federal Reserve’s own discretion. This means legislators have no budgetary control over a federal agency that is empowered to regulate a broad swath of the U.S. economy. Instead, the bureau’s budget is controlled more or less entirely by one person: the director, who can be removed only by the president, and even then only in limited circumstances.

This unchecked budget is devoted to implementing an extraordinarily wide regulatory mandate, which gave the CFPB power to write, interpret and enforce its own rules about everything from home mortgages to auto loans.

There’s a serious question whether all of this is even constitutional. It certainly is a breathtaking abdication of Congress’s authority, and sets a terrible precedent that will be increasingly difficult to unwind if Congress does not immediately insist on accountability.

The task is all the more urgent because the CFPB is already abusing its unique independence among federal agencies. Recognizing that it has regulatory authority over financial services on which all industries depend, the bureaucracy has discovered it can leverage that power to threaten any industry it wants. In collaboration with the FDIC and the Justice Department, the CFPB has apparently been involved in an initiative known as “Operation Choke Point” — a reference to financial services as a “choke point” of the whole economy.

The program involves pressuring banks and payment processors to deny service to entire categories of perfectly legal businesses — effectively crippling those industries’ ability to function. A 2011 document from the FDIC names 30 industries of focus, including “ammunition sales,” “firearms sales,” “pay day loans,” “coin dealers,” “online gambling,” “tobacco sales,” “racist materials,” “pornography,” and “telemarketing,” among others. 

This is a bureaucracy that is literally out of control, and every month Congress allows it to continue strengthens the bureau.

At the very least, there should be a path to fixing some of the CFPB’s worst excesses on a bipartisan basis. Both parties in Congress should be eager to restore their authority by subjecting the bureau to the annual federal appropriations process — especially now that the bureau has spent more to renovate its new headquarters than the inflation-adjusted price of the Louisiana Purchase. Another modest reform would be to install a bipartisan commission to lead the agency, replacing its largely unaccountable director, as the heads of six financial industry associations called for recently. This is a proposal that has previously won support from some Democrats as well as Republicans — and it’s one of the ideas Mrs. Clinton opposed in her letter to House Democrats this week.

If CFPB reform doesn’t happen within the next year, there’s a real danger that Congress will have set a lasting precedent that significantly weakens its powers — and that the American people will be stuck subject to a rogue agency we can’t get rid of.

Newt Gingrich is a former speaker of the U.S. House of Representatives. He is an adviser to the U.S. Consumer Coalition.

Newt Gingrich is a former speaker of the U.S. House of Representatives.

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