Do Not Revamp or Defund the CFPB
Republicans just want more deregulation, which led to crisis
When a government agency is doing its job well, support it!
By Brad Miller
Congressional Republicans have moved on to their next target for financial deregulation: Republicans in Congress and the consumer finance industry want to eliminate or hobble the Consumer Financial Protection Bureau (CFPB).
The latest push began days before Silicon Valley Bank and Signature Bank went bust. Congress enacted legislation in 2018 to strip safeguards from the law that were designed to prevent exactly what went wrong at the two banks, but Republicans are undeterred and certainly unchastened.
Republicans have introduced a slew of bills to protect the consumer finance industry from consumer protection.
Some Republicans propose to kill the agency outright, but others just propose to bring the meddlesome agency to heel by changing how the agency is organized and funded. Republicans argue that when Democrats first introduced legislation to create an agency to protect ordinary Americans from financial predation, the bill would have created a five-member commission with annual funding by Congress. Republicans just want to go back to the original bill for wholesome, good-government reasons, they say.
I confess. Former Representative Bill Delahunt of Massachusetts and I introduced that legislation in 2009.
We cribbed the proposed structure from the structure of existing agencies without enough attention to how well those agencies did their job. Many are controlled by the industries that the agencies were created to keep honest, part of what ordinary Americans see as the “swamp” of Washington politics. Political scientists call it “regulatory capture.”
The proposed structure was a formula for an agency vulnerable to capture by the powerful industry that preys on consumers. I blame my inexperience. I’d been in Congress for six years, but I was still naïve to the ways that industries control their supposed regulators and defeat reform.
In Democratic administrations, five-member regulatory agencies have three Democrats and two Republicans. The regulated industry usually starts with the Republican votes, and then just needs to seduce one Democrat with the prospect of lucrative employment on the other side of the revolving door.
It’s bad for the country but great for Democrats’ careers to get a member gig on a regulatory commission, side with Republicans to accommodate the regulated industry, and then leave government to work for the industry. The Washington establishment sees that as sensible centrism, not corruption, although many Americans disagree.
Mark Wetjen is a conspicuous example. Wetjen used his swing vote as a Democratic member of the Commodities Future Trading Commission to water down derivatives regulations after the financial crisis. Then Wetjen was head of “policy and regulatory strategy” for Sam Bankman-Fried’s now-bankrupt crypto exchange, FTX.
Every vote of a five-member commission could be a crapshoot. Instead, Rohit Chopra provides decisive, consistent leadership as the single CFPB director.
Keep CFPB Funding Independent
Annual appropriations from Congress are also a crapshoot, and regulated industries know how to load the dice. The competition for most captured agency in Washington is intense, but before 2008 the hands-down winner was the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie Mae and Freddie Mac, before the government rescued the two gigantic corporations from the brink of collapse in the 2008 crisis.
The power to defeat effective regulation worked very well for them until it didn’t: In 2001, Fannie was 13 and Freddie was 18 on Fortune magazine’s list of the most profitable corporations. Money is power in Washington, and Fannie and Freddie used their power to control OFHEO’s budget through friends in Congress, and OFHEO knew it.
The consumer finance industry and Wall Street (many consumer finance companies are subsidiaries of Wall Street banks) want to run the same hustle with the CFPB, and had the bill as introduced not been strengthened, could have. Instead, CFPB has independent funding from the Federal Reserve, out of the reach of financial predators and their friends in Congress.
The CFPB Works
A Republican attack on the CFPB as woke seems likely but might be a hard sell. “Woke” now has a precise definition on the right: “bad.” A great many ordinary Americans have had experience with the CFPB that was not woke at all, but good. The agency has provided $16 billion in restitution or cancelled debt to 192 million consumers since the agency began operation in 2010. And the people who live in East Palestine, Ohio, are far more likely to have benefitted from the CFPB’s protection than elites in tony coastal neighborhoods.
I sometimes, maybe almost always, have pride in authorship, but not this time. If the legislation had not been strengthened, then the CFPB would probably just be another weak, conflicted Washington agency. Instead, it’s one of the few institutions, public or private, that has earned Americans’ confidence in a long time.
Brad Miller, a Democrat, served in Congress for 10 years, representing a district that included half of Raleigh and half of Greensboro and rural counties along the border with Virginia until 2013. A native of Fayetteville and an attorney by training, he spearheaded efforts by Congress to address predatory lending and improve consumer protection. He is now in private practice.