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When the CFPB Makes the Rules



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The Washington Monthly’s Haley Edwards, in “He Who Makes the Rules,” laments the federal government’s dysfunctional regulatory apparatus, dubbing it the “seventh circle of bureaucratic hell.” President Obama’s “biggest second-term challenge . . . [will be] saving his biggest first-term achievements, like the Dodd-Frank law, from being dismembered by lobbyists and conservative jurists in the shadowy, Byzantine ‘rule-making’ process,” we are told.

One battlefront Edwards addresses, albeit briefly, is the Consumer Financial Protection Bureau. There, Republicans are supposedly “strong-arm[ing] Congress into weakening the CFPB’s independence,” and “gutting the entire agency” by bringing the agency’s funding under congressional appropriations power. Republicans have also proposed transforming the CFPB into a multi-member panel, and reining in the CFPB’s unrestrained ability to regulate “abusive practices.” Although Edwards opposes CFPB reform that would could align it with separation of powers as required by the Constitution, Edwards unwittingly makes the case for the opposite conclusion.

Edwards focuses on the arduous rule-making process whereby a statute becomes an enforceable rule — the very process that CFPB oversees for our nation’s consumer-finance laws. He argues that “the rule-making process is a dangerous place for a law to go. We might imagine it as a fairly boring assembly line . . . but in reality, it’s more of a treacherous, whirling-hatchet-lined gauntlet” where “a rule can be sliced, diced, gouged, or otherwise weakened beyond recognition.” Much of the rule-making process takes place “largely behind closed doors, supervised by people we don’t elect, whose names we don’t know, while neither the media nor great swaths of the otherwise informed public are paying any attention at all.”

But somehow, Edwards completely ignores that the CFPB epitomizes these rule-making deficiencies. Edwards would have this rule-making process occur carte-blanche, free from common restraints such as congressional appropriations — that is, the very processes that could reign in this shadowy, “dangerous,” “treacherous” process.

Similarly, Edwards frets about the tendency of bureaucrats to favor the wrong parties, yet can’t seem to understand that these same tendencies could manifest themselves in the CFPB. Edwards describes the “tight-knit relationships between industry lobbyists . . . and government officials,” and the “‘revolving door,’ which sends former bureaucrats into the private sector and vice versa, blurring the line between the regulators and the regulated.”

For Edwards, this favors well-connected big businesses instead of consumers (although I doubt Edwards would acknowledge that big businesses may support expansive regulatory structures because it increases a market’s barriers to entry). Why then would Edwards trust CFPB director Richard Cordray and his bureaucrats with unrestrained power to prohibit particular consumer-finance products? Even if Richard Cordray’s record is commendable, and he can transcend these seemingly universal difficulties, can we trust the next director not to favor the wrong parties? And the director after that?

Edwards would likely respond that checks and balances –robust judicial oversight and congressional oversight — favor industries more (though with the CFPB, the former is hindered by the board’s vaguely defined, near-unrestrained power to regulate “abusive practices”; a court cannot strictly police a statute if it is too loosely defined). In court, he suggests, “industry groups can sue an agency and have a rule killed on a variety of grounds, some of which make sense and some of which most definitely do not.” In Congress, we’re told, “an entire law can be retroactively gutted or poked through with loopholes, or . . . an agency can be quietly starved to death through appropriations bills.”

Here again, Edwards is short-sighted. As a democratically elected branch of government, Congress should have significant sway over our regulatory apparatus, while courts can provide recourse when regulations become too overreaching or too weak, either of which hurts consumers. If Edwards distrusts government bureaucrats, why rely exclusively on their power to design our country’s consumer-finance laws?

Admittedly, disbursing powers across three branches may look inefficient, but that is by constitutional design. As I wrote last year:

Our Founders made power difficult to wield because they did not trust unchecked power. While the CFPB’s design removes oversight from the purview of the three government branches, separation of powers spreads oversight power over three branches. For, as Madison in Federalist 47 says, “The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.”

As Free Enterprise Fund v. PCAOB (2010) explains:

And while a government of “opposite and rival interests” may sometimes inhibit the smooth functioning of administration.. “[t]he Framers recognized that, in the long term, structural protections against abuse of power were critical to preserving liberty.” (citations omitted).



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