The Corner

Commonsense Reforms to Prevent CFPB Abuse

There has been a great deal of discussion recently about the new federal Consumer Financial Protection Bureau (CFPB), created last year as part of the Dodd-Frank Act. After being elected last year, long before former Ohio attorney general Rich Cordray was nominated to be CFPB director, I expressed my strong concerns about the impact that this new regulator would have on consumer choices and our economy. Because the appointment of a director activates major new powers to regulate everyday consumer transactions and Main Street businesses, I took the position that some commonsense reforms had to occur before I could vote to confirm a new director.

The CFPB has vast power to limit consumer choices on everything from buying a first home to paying for a college education. No other federal regulator has so much authority over personal economic decisions, with so little responsibility to answer to the American people and their elected representatives.

By law, the CFPB answers to no one, sets its own budget, is controlled by a single director, and cannot be restrained unless its regulations threaten the stability of the entire U.S. financial or banking system.

Imagine a local school board structured this way: a one-person board, appointed by the mayor, who can’t be fired, and who can spend millions of public dollars every year without the approval of taxpayers or elected officials. If you wouldn’t want this structure in a local school board, why would you want it for a powerful federal regulator?

When I was first elected, I stated clearly that the CFPB should be more responsible to the people it is intended to serve. That includes three basic reforms.

First, we should fund the CFPB through the normal appropriations process, as is the case for other financial regulators like the Securities and Exchange Commission and the Commodity Futures Trading Commission. Under current law, the CFPB will have access to an annual budget based on a percentage of Federal Reserve revenues. This means over $500 million a year with no control by our elected representatives over how that money is spent. The potential for abuse is obvious.

Second, rather than concentrate these expansive new powers in the hands of one person, we should create a multi-member board to run the CFPB, as is the case with most independent agencies, including the Consumer Product Safety Commission and Federal Reserve Board, to name a few. Alternatively, I would support making the director answerable to the president, as is the case with executive agencies like the Environmental Protection Agency and Department of Labor.

Finally, we should give federal bank regulators, such as the FDIC, a check to prevent CFPB regulations from causing bank failures that will hurt consumers.

Unfortunately, the White House has refused even to engage on the issue of reforming the CFPB, despite my personal efforts to reach out and come to an agreement on these sensible improvements. That is why I voted today against proceeding to the nomination of Mr. Cordray to serve as director.

As noted above, it is important to adopt these reforms before confirming a director because major new powers of the CFPB are triggered as soon as a new director takes office. As a recent Treasury Department Inspector General’s report explained, until a director is confirmed, the CFPB can generally exercise the power to regulate banks transferred by the Dodd-Frank Act from other federal agencies — but not the major new powers to regulate consumer transactions with Main Street businesses, where there is the greatest potential for regulatory excesses.

Checks and balances are central to the American constitutional tradition, and there’s no reason to exempt the CFPB. James Madison famously wrote that “if angels were to govern men, neither external nor internal controls on government would be necessary.” But human nature being what it is, Americans have always insisted on commonsense checks on powerful government agencies to prevent abuses of power.

I believe Mr. Cordray is a good public servant. The question whether to move forward with an appointment and trigger these new powers has never been about him. It is regrettable that the White House has refused even to discuss reforming the CFPB so that the Senate could consider his nomination on the merits. Now that the Senate has voted not to proceed on the nomination, I hope to be able to work with the administration and other interested senators to address these basic accountability reforms in order to find a way forward.

— Rob Portman represents Ohio in the U.S. Senate.


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