THE FINANCIAL SERVICES INDUSTRY’S MISGUIDED QUEST
TO UNDERMINE THE
CONSUMER FINANCIAL PROTECTION BUREAU

ARTHUR E. WILMARTH, JR.

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Key Points and Supporting Quotes

There is nothing unprecedented about the CFPB’s structure or funding

“CFPB’s powers, governance, and funding are hardly unprecedented among federal financial regulators. CFPB’s rulemaking and enforcement authorities resemble those of other federal bank regulators. CFPB’s leadership by a single director is similar to the governance structure of OCC and FHFA. CFPB’s ability to fund its operations without relying on congressional appropriations is comparable to other financial regulators except for CFTC and SEC. While the financial services industry and its Republican allies have vigorously attacked CFPB’s perceived independence, they have strongly defended the autonomy enjoyed by OCC and FHFA, which represent the closest regulatory analogues to CFPB’s structure.” (Page 900)

“In some areas, CFPB’s regulatory powers are less extensive than those of FHFA and federal bank regulators. For example, FHFA may serve as conservator or receiver of any of its regulated entities.”  (Page 906)

“Like the CFPB’s Director, the OCC’s Comptroller is appointed by the President for a five year term, with the advice and consent of the Senate.” (Page 905)

“Like the CFPB’s Director and the OCC’s Comptroller, the FHFA’s Director serves as the single head of the agency.” (Page 905)

In some ways, the CFPB is less powerful than other financial regulators

“OCC exercises extensive supervisory powers over the structure and governance of national banks, including the authority to approve or deny applications for new charters, changes in the location of main offices and branches, opening of new branches, conversions into state banks, and mergers and consolidations with other depository institutions. CFPB does not possess comparable supervisory powers over providers of consumer financial services.” (Page 907)

“CFPB may not impose any usury limit on consumer credit transactions “unless explicitly authorized by law.” Moreover, before it issues any regulation, CFPB must analyze “the potential benefits and costs to consumers and covered [providers of consumer financial services], including the potential reduction of access by consumers to consumer financial products or services resulting from such rule.”” (Page 908)

“Title X also subjects CFPB to significant oversight by the executive and legislative branches.” (Page 911)

“In contrast [to the OCC, FDIC, and FHFA], CFPB has substantial but not complete budgetary autonomy… [T] he independent funding that CFPB receives from [the Federal Reserve] is capped at approximately $500 million, adjusted for future inflation, and CFPB is required to seek a congressional appropriation if it wishes to increase its budget beyond that amount.” (Page 906)

The changes sought by its critics would dramatically weaken the CFPB

“[F]ederal prudential regulators would be able to block any CFPB rule if they believed that the rule would have an adverse impact on one or more financial institutions that were subjects of regulatory concern. As shown below, prudential regulators would be likely to exercise their veto power to protect the interests of their largest regulated constituents.” (Page 925)

“By giving prudential regulators an enhanced veto over CFPB’s regulations, the House bill would effectively put responsibility for consumer protection back in the hands of the same agencies that failed to protect both consumers and our financial markets during the past decade.” (Page 929)

Independent funding can help insulate an agency from industry capture

“CFPB’s institutional safeguards—including its policymaking autonomy and its assured source of funding—make it substantially more insulated from industry capture compared to OCC, CFTC, SEC and FRB.” (Page 941)

“FDIC’s clearly-defined mission and its secure source of funding have encouraged the agency to act with more independence from the banking industry, compared to OCC and the Fed. A recent study concluded that, while FDIC made some supervisory mistakes during the subprime lending boom, its overall regulatory record during the subprime lending boom was better than that of OCC and the Fed. The FDIC’s greater willingness to resist industry influence indicates that CFPB’s unambiguous mission and assured funding should encourage a similarly independent attitude within CFPB.” (Page 950)

Single-director agencies can be more efficient and consistent than commissions

“…[A] 1987 evaluation of the Consumer Product Safety Commission (“CPSC”) by the General Accounting Office (“GAO”) concluded that the superior administrative effectiveness of a single-director structure would outweigh any potential benefits of collegial decision-making within CPSC’s multimember commission.” (Page 920)

“GAO found that CPSC’s leadership lacked stability and direction due to “high turnover” in the commission’s membership, squabbles among commissioners over resources, and delays in decision-making.” (Page 921)

“Creating a five-member commission would likely produce more delay and less consistency in CFPB’s decision making. Moreover, a five-member commission would expose CFPB to the risk of leadership deadlock whenever a commissioner left office.” (Page 921)

Financial watchdogs that depend on congressional appropriations have been chronically under-funded

“Congress has undermined the effectiveness of CFTC and SEC over the past two decades by frequently failing to provide those agencies with adequate funds.” (Page 951)

CFPB critics falsely assume a conflict between consumer protection and safety and soundness

“The House bill is based on the unwarranted assumption that protecting consumers frequently injures the safety and soundness of financial institutions……To the contrary, there has been significant evidence and extensive testimony that the opposite was the case.” (Page 926)