How The CFPB Disregards the Democratic Republic


In recent years, you may have noticed that some things have changed at your bank. There might be new requirements for setting up an account, for withdrawing money, or for making deposits. Many of these changes have come from one agency, the Consumer Financial Protection Bureau (CFPB).

As one of his first acts in office, President Obama signed into law the Dodd-Frank bank regulation bill. The new law, in part, established the CFPB in order to protect consumers against predatory business practices. This was in the wake of the housing market collapse, spurred by a bevy of defaults on subprime loans.

The CFPB was designed in a way that is unique from most other federal agencies. Unlike the Environmental Protection Agency, for instance, the CFPB is not accountable to any higher level of government. It is not funded by Congress, but by the Federal Reserve; and it is very difficult to remove its sole director.

Before the Dodd-Frank Act created the CFPB, all agencies had some level of accountability either to the president or to Congress. But the CFPB represented a startling new idea for American governance. An agency designed to protect consumers was not accountable to those consumers through any transparency or oversight process.

Peter Wallison, a lawyer specializing in banking and financial markets, says that this is hardly the kind of vision the American Founders had in mind. They deliberately created a system of checks and balances, where each branch of government would be accountable to the other, and within each branch there would be layers of accountability as well.

The U.S. Constitution created a government of separated powers — a Congress to make the laws, a president to execute or enforce the laws, and a judiciary to interpret the laws — and each of the parts was intended by the Framers to be independent of the others and to carry out its responsibilities within its assigned jurisdiction. In this structure, the president has only the authorities given to him in laws passed by Congress, and Congress can specify by law how the executive agency will be structured — whether, for example, it is headed by a single director or by a bipartisan commission.

Because the agency can effectively operate on its own, it can and has been creating new rules in the financial market that are costing consumers money. The agency claims to be a “data-based” organization, but the complaint data it receives is seldom verified for accuracy. Inaccurate data leads to bad policy, and that has consequences for consumers, making banking more time-consuming and expensive.

Under the Dodd-Frank Act, the CFPB operates by a very ambiguous set of rules. President Trump says he wants to bring more light to the CFPB by changing the source of their funding from the Federal Reserve to Congress. If the CFPB misbehaves, Congress can rein it in using the power of the purse, just as the Founders intended.