The CFPB and its defenders have asserted several arguments against critics of the CFPB. One startling argument is that the CFPB not only has adequate oversight and accountability, but that it is the "most accountable agency in government." That is a remarkable claim indeed. How does it measure up to the facts?
On March 16, 2011, Elizabeth Warren, in her current capacity as Assistant to the President, and Special Advisor to the Secretary of the Treasury, testified before the U.S. House of Representatives Financial Institutions Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit, in a hearing titled "Oversight of the Consumer Financial Protection Bureau." Her exact words are quoted below (emphasis in bold):
So, in terms of accountability, accountability for the financial services industry, accountability of this new bureau, let me remind everyone about the structure of this new bureau. It is the only agency in all government – let me underline that --whose rules can be overruled, obliterated, wiped out, negated by other agencies. The structure of Dodd-Frank is quite frankly to make this the one agency that other agencies can come in and say under the Financial Stability Oversight Council, "We don't like that rule. And so, we are not going to permit that rule to become law." . . . That means in these two critical respects [(FSOC and the statutory cap on the CFPB budget)], the consumer agency is not the strongest agency in government, it is the most constrained and the most accountable agency in government.
Elizabeth Warren professes to despise misleading statements. She also said in that same hearing that "Fine print is fine for those who want to hide something, but not good for families who want to know what they are getting into." At a later hearing on May 24, 2011, Elizabeth Warren further said that "At the consumer agency, we aren't just talking about transparency and openness, we are living it right now." So, was Elizabeth Warren, the assumed first director of the CFPB, being transparent and open in saying that the CFPB is the "most constrained and most accountable agency in government"?
What about the power of other agencies to overrule the CFPB? Under Section 1023(a) of Dodd-Frank, the Financial Stability Oversight Counsel (the "FSOC") can overrule the CFPB if and only if two thirds of the members of the FSOC follow several strict procedures and then decide that the regulation endangers the U.S. banking system or the stability of the financial system of the United States. Look at the actual words of Dodd-Frank:
FSOC can overrule only if necessary to prevent threat to the entire U.S. banking system. Dodd-Frank 1023(a): Review of Bureau Regulations -- On the petition of a member agency of the [FSOC], the [FSOC] may set aside a final regulation prescribed by the [CFPB], or any provision thereof, if the [FSOC] decides, in accord with subsection (c), that the regulation or provision would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk (Dodd-Frank, Section 1023(a)).
FSOC must act publicly within 10 days and follow strict procedures. Dodd-Frank 1023(b): Petition -- An agency represented by a member of the [FSOC] may petition the [FSOC], in writing, and in accordance with rules prescribed pursuant to subsection (f), to stay the effectiveness of, or set aside, a regulation if the member agency filing the petition--
(A) has in good faith attempted to work with the Bureau to resolve concerns regarding the effect of the rule on the safety and soundness of the United States banking system or the stability of the financial system of the United States; and
(B) files the petition with the [FSOC] not later than 10 days after the date on which the regulation has been published in the Federal Register.
Two-thirds vote required. Dodd-Frank 1023(c)(3)(A) -- The decision to issue a stay of, or set aside, any regulation under this section shall be made only with the affirmative vote in accordance with subparagraph (B) of 2/3 of the members of the [FSOC] then serving.
In short, the regulatory agencies comprising the FSOC have only 10 days to act, and can only overrule a CFPB rule if they show that the rule threatens the entire U.S. financial system and 2/3 of the FSOC members agree. These are extremely high substantive and procedural bars to clear. Nowhere does Dodd-Frank say that other regulators can overrule a CFPB rule simply because they think it is a bad idea or otherwise do not like it. Ms. Warren did not state the truth when she said that "other agencies can come in and say under the [FSOC], 'We don't like that rule. And so, we are not going to permit that rule to become law'." Even if all 10 of the FSOC members (except for the CFPB director who also sits on the FSOC) think a particular CFPB rule is ill-advised and counterproductive, there is nothing they can do about it if the rule does not threaten the entire U.S. financial system. In other words, the CFPB is quite safe from FSOC review.
Consider the following additional facts in evaluating Ms. Warren's sworn testimony that the CFPB is the "most accountable agency in government":
(1) Federal courts must defer to the CFPB. Dodd-Frank says that federal courts established under Article III of the U.S. Constitution must defer to the CFPB regarding the meaning or interpretation of any provision of federal consumer financial law:
. . . the deference that a court affords to the [CFPB] with respect to a determination by the [CFPB] regarding the meaning or interpretation of any provision of a Federal consumer financial law shall be applied as if the Bureau were the only agency authorized to apply, enforce, interpret, or administer the provisions of such Federal consumer financial law (Dodd-Frank, Section 1022(b)(4)(B)).
(2) The CFPB has a guaranteed budget, unlimited by Congressional oversight or competitive marketplace pressures. Dodd-Frank requires the Federal Reserve to give CFPB 12% of its operating expenses, which would be about $480 million based on the Fed's 2009 operating expenses of just over $4 billion. Other estimates of the CFPB's guaranteed budget range up to $600 million. Dodd-Frank says that those funds are not subject to Congressional review or oversight and that the Federal Reserve is strictly forbidden to intervene in any CFPB matter. Thus, the CFPB is part of the Federal Reserve but not accountable to it in any way and the CFPB has a guaranteed budget that cannot be touched by anyone for any reason and is not subject to marketplace pressures as are other banking regulators. For example, the Office of the Comptroller of the Currency ("OCC"), a bureau within the U.S Treasury Department, depends on national bank assessments for its budget. It must compete with state regulators who tout state banking charters as an attractive alternative to the national bank charter. Thus, the OCC's budget is highly accountable in a competitive marketplace. The FDIC, which is funded by deposit insurance premiums, is accountable both to its insured institutions, which loudly protest perceived excessive premium charges and practices and it is structurally accountable due to its mission of preserving a solvent deposit insurance fund to protect depositors.
(3) The President can remove the CFPB director only for cause. Federal agencies, such as the OCC, are headed by a single individual, but that individual always serves at the pleasure of the president and the President has total power to fire that person for any reason. In dramatic contrast, the President's power to remove the CFPB director is strictly limited to the following reasons: "inefficiency, neglect of duty or malfeasance in office" (Dodd-Frank Section 1011(c)(3)).
(4) The CFPB is run by a single person, not a board or a commission.
The Federal Reserve has a 7-member Board of Governors. The FDIC has a 5-person board of directors. The SEC is a multi-person commission. And, like the FDIC that can have no more than 3 directors from the same political party, these bodies are structured to have genuine bi-partisan checks and balances. The CFPB is the only financial regulator to concentrate all power in the hands of one person, its Director, who has no check on his or her political inclinations.
The CFPB really is different from other financial regulators but not in the way Ms. Warren testified. Its budget is untouchable, federal courts must defer to its decisions, the FSOC can overrule its decision only in the most extreme of circumstances, its director can be fired only for cause and its director holds sole power over the CFPB and is not answerable to any board or commission. The CFPB is in fact the least accountable of the financial regulators and could easily be the least accountable agency in government.
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