Congress Quietly Charts A Path For The Consumer Financial Protection Bureau

By Jean Noonan

Last week all the news about Congress focused on the budget battle and whether the inability of Democrats and Republicans to agree would result in a government shut-down. While the budget battle raged in public, a deal on another contentious issue was being quietly forged. It looks like the left and the right might actually reach an agreement, and the result could be good for consumers. I’m talking about the Consumer Financial Protection Bureau, how it will be managed, and who will be in charge.

Last week, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing to discuss the future of CFPB, and it seems a deal is in the works. The agency has been hotly debated since it was first proposed.

Title X of the Dodd-Frank Wall Street Reform Act created the CFPB, and called for it to be run by a single director appointed by the President and confirmed by the Senate. Consumer advocates strongly supported Elizabeth Warren for the appointment. Professor Warren has written and spoken about consumer protection for a couple decades, and after all, the Bureau was her brainchild; who better than she to be its first director?

[Related article: The CFPB and Congress’ Need for an Adult Conversation]

The banks gagged at the thought. The position would be an extremely powerful one, and they viewed her as far too doctrinaire for job. There were doubts about whether she could be confirmed by the Senate, even before the mid-term elections. The White House charted a shrewd course; rather than nominate her and have a confirmation battle that might fail, or pass her over for someone else and incur the wrath of her supporters, the President named her as a Special Advisor to the Treasury Department, charged with getting the agency up and running.

So what has happened during her tenure of several months? Lots of good work and little controversy. Her appearances before Congressional committees by and large have gone well. She has been smart, respectful, and inclusive. Her answers to tough questions have generally been…reasonable. No fireworks. Lots of competence.

But some more radical elements have vowed not only to keep her from ever becoming the Director, but have advocated dismantling the bureau before it even becomes operational in July. The rhetoric on both sides hinted that we might be in for a showdown that could paralyze things as only Congress can do so well.

[Related article: The GOP’s Plans for Financial Reform]

Then, rumours of a compromise began to surface. The Republicans would allow Professor Warren to be confirmed as the first head of the CFPB. In exchange, the Democrats would agree to amend the structure of agency from a single director to a five-member bipartisan board, which Professor Warren would chair.

The idea for a board as opposed to a single director is not a new one. The original House-passed version of the bill that became Title X of the Dodd-Frank Act included a five-member board as part of the leadership on the consumer protection agency that eventually became the CFPB. The White House’s original proposal for financial reform, released in June 2009, called for the creation of a consumer financial protection agency governed by a board. One might assume, then, that a return to the original governance proposed by the White House and the Democratic leadership in the House of Representatives would not be too hard to sell now to the Congressional Democrats. I happen to think this compromise, if it comes about, may be even better for consumers.



How it Could Work

First, a five-member board may avoid the sharp swings in policy when the political power changes in Washington. Just as some financial institutions fear a director who might protect consumers without regard for the legitimate concerns of banks, consumer advocates must worry that a conservative president and Congress could appoint a director who would gut important consumer protections. A five-member bipartisan board with staggered terms would moderate possible extremes in either direction and provide for stability and respect for the institution.

Aside from the philosophical balance that a bipartisan board provides, there are practical benefits. What happens to the CFPB when it lacks a Senate-confirmed director? Does it lack the legal authority to take official action, whether that is finalising a rule or taking an enforcement action against a bad company? I know from experience that these questions can have tricky answers.

[Resource: Get your free Credit Report Card]

For a decade I was the General Counsel of the Farm Credit Administration, an agency run by a three-member board, whose members were appointed by the President and confirmed by the Senate. Fortunately, we were never without two Senate-confirmed members during my tenure, but there were some close calls. I dreaded the possibility I would have to advise the agency that it could not take action regarding a failing bank because, without a quorum, the board could not act. Having a single director who holds the ultimate power greatly increases the chance the CFPB would experience periods without a Senate-confirmed agency head.

The model of the five-member commission arose during the Progressive era and was warmly embraced by New Deal liberals. The Federal Trade Commission, where I served through the administrations of five presidents, is a great example of a Progressive era five-member commission. There were periods where there was more friction than collegial discourse, but these were few. I always sought to get all five votes in support of my matters before the Commission, and I generally succeeded.

Last week’s hearing focused on bills that would restructure the CFPB. The witnesses were generally supportive of a change to a five-member commission, although prominent consumer advocates were largely absent from the witness list. Was this hearing designed to lay the groundwork for a compromise? I hope so. A back-room deal that would combine a five-member commission with having Professor Warren at its head could be a surprisingly good deal for all of us.

This post originally appeared at

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