The new head of the Consumer Financial Protection Bureau, Kathleen Kraninger, will have a unique opportunity to end past abuses against American financial institutions, a big problem when the agency was run by former director Richard Cordray. During that era, the bureau too often used arbitrary and retroactive standards to persecute businesses it disliked and interfere with politically disfavored business practices.
Over the past year after Cordray left, acting director Mick Mulvaney initiated reforms to rein in the bureaucrats and empower consumers, but the problem remains that no presidential appointee can accomplish the most important reforms alone. Congress must take a hard look at the size and scope of the wide ranging powers of the director to oversee and regulate most consumer financial products. Its unilateral decision making authority as a government agency is unlike any other. Congress designed the position that way, but it is time to reevaluate the setup of the bureau.
{mosads}Congress forgot about checks and balances, one of the most important constitutional principles, in creating the bureau. Federal agencies are supposed to be subject to oversight by other institutions that can stop them from wreaking havoc with consumers and their livelihoods. The bureau, however, is mostly free from these important constraints. The director, for instance, can only be removed from office for cause, which in practice means wrongdoing or dereliction of duty. That means a president who disagrees with his or her policies can do nothing about it.
There is no meaningful oversight from the executive branch, which makes the bureau uniquely unaccountable. While other independent agencies in the federal government can pursue policies at odds with the president, those agencies are commissions that are comprised of people from competing political parties, a setup that functions as internal checks and balances, not a single director who has absolute discretion over policies.
Those independent agencies are also subject to oversight by Congress, which can restrain a rogue agency by cutting off funding through the “power of the purse.” Congress used that to rein in the Federal Trade Commission in the 1980s. Today, Congress holds no such power over the bureau, which receives funding on request from the Federal Reserve. This unusual arrangement allows the bureau director to display contempt for Congress, as when a previous director challenged Representative Ann Wagner, who had expressed concern that the bureau headquarters refurbishment was costing more per square foot than Trump Tower.
Even the courts have less power over the bureau compared to other agencies. The Dodd Frank Act instructed courts to give extra deference to the bureau interpretation of its own powers. Unsurprisingly, the bureau has disregarded concerns about its policies. For example, the bureau retroactively changed an interpretation of a rule related to mortgage servicing and then cracked down on a company for breaching a rule the company could not know existed. The bureau administrative law judge found against the company, but bureau lawyers appealed to the director, who upped the fine from $6 million to a staggering $109 million. Clearly, this action breached the due process rights of the company, as the Court of Appeals for the District of Columbia subsequently ruled. Unfortunately, the court stopped short of declaring the bureau itself unconstitutional.
The bureau desperately needs a director who can wield enormous power with restraint and good judgment. There are signs that Kraninger fits the bill. As an assistant to Mulvaney in his other role as White House budget chief, she was responsible for drafting a budget that brought the bureau within the legislative appropriations process, which is where it should be. Congress has a bigger task. As noted above, the position allows for little oversight by Congress, and the director can brush off any attempts at it.
That may have been attractive when Democrats were in the minority in Congress and the Obama administration nominated the director. Now perhaps they will see reason to bring the bureau back within legislative reach. Republicans should agree with them for sound constitutional reasons. Congress made a big mistake in granting the director so much power and so little accountability. It is now time to correct that mistake.
Iain Murray is a vice president at the Competitive Enterprise Institute.