What Is the Consumer Financial Protection Bureau (CFPB)?
- Created by Dodd–Frank: The CFPB is an independent bureau within the Federal Reserve System that was designed by lawmakers to regulate a vast array of financial products and services.
- Already Regulating: The bureau officially opens on July 21, although staff have already begun to craft new regulations (e.g., real estate settlement procedures and definitions of newly regulated entities).
- Already Investigating: The CFPB is prohibited from some regulatory activities until a director is nominated by the President and confirmed by the Senate. Absent a director, however, the CFPB can conduct investigations as a form of policymaking.
- Consolidated and Expanded Authority: Once confirmed, the CFPB director will exert unparalleled regulatory powers—the consolidated and expanded authority over consumer financial products and services previously wielded by seven federal agencies.
The CFPB Is Unaccountable
- Unaccountable Excess: Largely unaccountable to Congress and imbued with sweeping powers, the agency is the epitome of regulatory excess. Because the bureau is ensconced within the Federal Reserve, its budget is not subject to congressional control. This budgetary independence limits congressional oversight of the agency.
- No Congressional Oversight: Although some financial regulatory agencies, such as the Federal Deposit Insurance Corporation and the Fed itself, also fall outside the congressional appropriations process, they are the exceptions rather than the rule among government agencies.
- No Presidential or Fed Supervision, Either: The CFPB’s status within the Fed effectively precludes presidential oversight, while the Federal Reserve is statutorily prohibited from “intervening” in CFPB affairs.
- Undefined Authority Risks Abuses of Power: The CFPB’s accountability is further minimized by the vague language of its statutory mandate. It is empowered to punish “unfair, deceptive and abusive” business practices. While unfair and deceptive have been defined in other regulatory contexts, the term abusive is largely undefined, granting the CFPB officials inordinate discretion to define its own powers.
- Veto of Bureau Actions Exceedingly Narrow: The Financial Stability Oversight Council may exercise oversight of the CFPB only if bureau actions would endanger the “safety and soundness of the United States banking system or the stability of the financial system of the United States.” Any veto of CFPB action would also require the approval of two-thirds of the council’s 10-member board.
The Consequences of the CFPB
- Will Make Financial Services More Expensive for Consumers: The CFPB will make consumer loans, credit and debit cards, checking and savings accounts, and many other financial products and services harder to obtain and more expensive to use.
- Will Not Prevent a Future Financial Crisis: The financial crisis did not result from any lack of regulation over consumer financial products and services. Therefore, creation of the CFPB will not help to prevent a future crisis.
- Path to Reform: Congress should abolish the CFPB’s current funding mechanism (a fixed percentage of the Federal Reserve’s operating budget) and subject it instead to congressional control, strike the undefined term abusive from the list of practices under CFPB purview, and explicitly require the bureau to apply definitions of unfair and deceptive practices in a manner consistent with regulatory convention and case law.