The Consumer Financial Protection Bureau
Posted: October 21, 2016
Ever since the Consumer Financial Protection Bureau was created six years ago in the wake of the economic meltdown, bankers and their congressional allies have sought to undermine the federal agency. Last week, the financial industry won a round in court. But the bureau remains in business and consumers should hope it continues to survive legal and political attacks.
To understand the court ruling, it's helpful to first understand why the consumer bureau was so badly needed and how much it has already accomplished. For years, plenty of laws protected consumers from abusive financial practices, but no agency was devoted to ensuring that those laws were obeyed. Authority was splintered among numerous agencies that often treated customers as an after-thought.
After the 2008 financial crisis, which drove hundreds of thousands of homeowners into foreclosure, Congress created the new agency with the sole mission of consumer protection. It's major accomplishments include: Collecting $11.7 billion in relief for more than 27 million consumers in actions against credit card companies for abusive practices, banking for charging erroneous overdraft fees and mortgage companies for wrongful foreclosures.
The agency also created a website for consumer complaints and investigations to ensure that they are being resolved. And the agency has made information available about mortgages, student loans, auto loans and other financial products more understandable.
On the other hand, the Consumer Protection Financial Protection Bureau is headed by a director who single-handedly has jurisdiction over 15,000 institutions and whose decisions impact millions of consumers every day. This person is judge and jury when it comes to imposing fines, rulemaking activity and supervisory opinions. The structure makes the CFPB director the most powerful person outside of the president of the United States.
In the court case decided last week, a mortgage lender was fined $109 million by the CFPB that so that to overturn the fine and argued that the bureau's power structure placed unconstitutional power in a single director. A panel of the D.C. Court of Appeals agreed, but it rejected the ruling the lender sought: A shutdown of the bureau. Instead, the judges said the problem could be solved by allowing the president to fire the director "at will", just like other cabinet members.
The only thing that bothers me about all of this is that the director of the agency is at risk of being shifted by political winds every four years. If the CFPB is to deliver stable, effective oversight, it must be impartial when issuing judgment.