Court ruling highlights need for new CFPB structure

When the U.S. Court of Appeals for the D.C. Circuit ruled last week that the Consumer Financial Protection Bureau’s (CFPB) structure is unconstitutional, the court affirmed something I have been arguing for some time: too much power is vested in a single person, CFPB Director Richard Cordray.

The U.S. Constitution created a system of checks and balances because our founding fathers understood that too much power concentrated in too few individuals has too much potential for abuse. Moreover, last week, the D.C. Circuit warned that the Bureau’s current structure led to the “risk of arbitrary decision-making and abuse of power.” Further, the court said this structure represents a “threat to individual liberty.”

{mosads}Since its creation, the CFPB has already proven the court right. From bypassing the public notice and comment process for major policy changes, to eliminating consumer choice by prohibiting certain financial products, the Bureau has leveraged its dangerous structure to push an active political agenda. The Bureau’s lack of transparency and accountability is unprecedented. Unfortunately, these actions have led to a large number of legal challenges, which undermine the Bureau’s institutional integrity.

The court’s decision is a good first step in recognizing the unconstitutional leadership structure. However, the D.C. Circuit did not remedy the Bureau’s inherent structural problem. The fact remains that even with direct accountability to the President, as implemented by the court, the CFPB Director can still proceed with a politicized agenda and only fear removal if the director’s priorities are at odds with the President’s, an event likely only with a change in party. 

Contrary to the messaging of some, Republicans believe in strong consumer protection. Consumer protection is important to a well-functioning financial marketplace. This protection must be balanced and politically-neutral. Regulations must be smart and tailored to preserve consumers’ product choice and credit availability. The Bureau’s purpose, to protect American consumers by ensuring a fair and transparent financial marketplace, is worthy. As a result, the Bureau has a duty to ensure balance and political neutrality in its decision-making, something that has yet to occur.

This Congress, I introduced H.R. 1266, legislation to give the Bureau a bipartisan, five-person, commission leadership structure. This legislation would remedy the design mistake the Democratically-controlled Congress made in 2010 when they sacrificed long-term vision for short-term gain. In creating this new agency, Congress undertook a “gross departure from settled historical practice” in the design of its leadership. A commission structure has worked well at other federal agencies in charge of regulating products and markets. For example, the Commodities Futures Trading Commission, the Securities and Exchange Commission, and the Federal Trade Commission all exercise their important roles with balance. As the court noted, “Never before has an independent agency exercising substantial executive authority been headed by just one person.”

For the first time since the passage of the Dodd-Frank Act, some of my Democrat colleagues have recognized the consequences of the Bureau’s current policy posture and the long-term implications for the Bureau if the White House is controlled by another political party. H.R. 1266, which has earned bipartisan support, restores the original designs of then-professor Elizabeth Warren, former House Financial Services Committee Chairman Barney Frank, and even President Obama, all of whom advocated for a commission structure. They had it right the first time.

With a change in the CFPB’s leadership structure, American consumers can be protected both from unfair and deceptive business practices as well as politically-motivated regulatory abuse from the federal government. We need the CFPB to be a sustainable and credible agency. Unfortunately, without a structural change, it will continue to lack institutional integrity and remain a political lightning rod with every change in Administration. Congress must act.

Rep. Randy Neugebauer (R-Texas) is the Chairman of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

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