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Lack of Congressional Oversight
Despite the Consumer Financial Protection Bureau’s size and importance, it operates almost completely without oversight from Congress, the courts, or the executive branch.
Supporters of the CFPB argue that because the agency’s director and high-level staff members testify before Congress several times a year in oversight hearings, Congress does indeed have oversight over the powerful consumer agency. But while Congress is free to question CFPB officials and request information, the CFPB does not have to alter its practices based on Congressional inquiries or prove its worth to Congress through the normal appropriations process.
The CFPB receives its funding as a fixed percentage of the Federal Reserve’s annual budget. (The Federal Reserve also does not rely on Congress for funding approval.) Other agencies that don’t rely on Congressional funding, like the Tennessee Valley Authority and the Office of the Comptroller of the Currency, pay for their administrative costs by charging fees to their members.
Why is it important that agencies ask Congress for funding?
Asking Congress for funding every year forces federal agencies to do two things:
- Prove the agency is achieving its policy goals—agencies provide proof to Congress that they are meeting expectations and fulfilling their regulatory and/or supervisory roles.
- Justify budget expenses—Congress is able to review expenditures to make sure agencies are properly using federal money.
The congressional budget process also allows Congress to take an overall look at the federal budget and determine which agencies need more funding than others.
Independent from Scrutiny
As recent Congressional hearings have revealed, the CFPB can be audited by Congress and other agencies, but cannot be forced to change its policies.
This independence, when combined with the CFPB’s broad authority, should pose concerns for Americans. For example, the CFPB has the ability to request large volumes of information from banks regarding customer accounts and habits. However, when asked during a recent congressional hearing to provide copies of consumer financial data requests it made to banks and other financial institutions, the agency’s Chief Financial Officer refused.
The agency also lacks sufficient judicial oversight. Under the Dodd-Frank Act, courts are directed to defer to CFPB judgment regarding the agency’s interpretations of federal consumer financial law.
In fact, the only real check on the CFPB’s rulemaking comes from the Financial Stability Oversight Council (FSOC). The FSOC can overturn a CFPB rule, but only in extreme circumstances. Seven of the ten FSOC voting members — of which the CFPB is one — must vote to veto a measure, but can only do so after each agency independently concludes that the CFPB rule poses a risk to the U.S. banking or financial system.
Problems with a Single Director
Unlike similar federal agencies, the CFPB is run by a single director. The CFPB’s single-director governance is particularly unsettling given the agency’s overall lack of oversight.
Even the Center for Responsible Lending, one of the CFPB’s staunchest supporters, expressed concern with having such an important agency headed by a single individual in testimony before the House Financial Services Committee:
The proposed changes in governance of the CFPA would put the Agency’s policy in the hands of one person. While we believe that overall, an Agency with the American family as its “customer” instead of the financial provider, is structurally more likely to be an honest referee, it would be unrealistic to assume that sometimes the Agency’s director would not make some bad calls.
(Note: The CFPB was originally proposed as the Consumer Financial Protection Agency or CFPA.)
While Democrats now strongly support the CFPB’s structure, members of the party originally proposed the CFPB as an agency governed by several individuals:
- In 2009, Rep. Barney Frank (D-MA) introduced HR 3126, which provided for the CFPB to be run by a five-member board. Under the bill, four of the five board members would be appointed by the President and confirmed by the Senate and the fifth member would be the head of the Office of the Comptroller of the Currency.
- Senator Chris Dodd (D-CT), Chair of the Senate Banking Committee, proposed a five-member Board of Directors for the CFPA. Four members would be appointed by the President and confirmed by the Senate, and the fifth person would be the Director of the proposed Financial Institutions Regulatory Administration (FIRA), a new agency created by the bill to consolidate prudential banking supervision in the hands of one agency.