The Consumer Financial Protection Bureau’s enemies are still trying to find a plan of attack.
Conservatives and the financial services industry want to overhaul the agency, created with the help of Democratic Sen. Elizabeth Warren by the 2010 Dodd-Frank financial reform law to oversee financial products such as credit cards and mortgages.
The industry is chafing under the bureau’s new rules, and conservatives object to the agency’s design. It is not funded by Congress, but instead automatically by the Federal Reserve. And it is run by a single director, not a bipartisan commission. As a result, it has unusual ability to set rules as it sees fit, a power conservatives have decried as unconstitutional.
But, even with a unified GOP government, there is not a clear strategy about how to overcome Senate Democratic opposition to reform the bureau.
One complication is that the procedure that would allow Republicans to pass reform legislation with only 51 votes in the Senate, known as budget reconciliation, might not be suitable for legislation affecting the bureau.
Another is that some Republicans have reversed course now that a Republican is in the White House and no longer want to replace the bureau’s single director with a bipartisan commission, but rather with a sympathetic deregulator who can harness the agency’s power to pursue conservative goals.
This year’s version of sweeping House Republican legislation to replace the Dodd-Frank financial reform law will keep the single director, according to notes circulated among Republicans this week. Last year’s version had imposed a five-member commission.
That is not what the industry wants. On Thursday night, the Consumer Bankers Association told the Senate Banking Committee that they recommend instituting a bipartisan commission to promote balanced and deliberative regulation. Keeping a single director, the group warned, would make the agency “susceptible to changing political viewpoints, jeopardizes industry certainty and makes it difficult for banks and credit unions to develop long-term plans to serve consumers and small business.”
Yet the GOP case for implementing a single director would be the same as Democrats made when they created the bureau: A single director can change the agency’s direction more quickly. A Republican would be able to push regulatory relief just as expeditiously as Obama appointee Richard Cordray.
One crucial difference is that, under the legislation being drafted by House Financial Services Committee Chairman Jeb Hensarling, the director would serve at the will of the president, meaning that the director would be accountable to the executive branch, if not Congress. That aligns with an October federal court decision, since stayed pending appeal, that the agency was unconstitutionally structured and that the remedy was to allow the president to fire the director without cause.
Nevertheless, a GOP-appointed director would be a political escalation of the bid to reshape consumer finance regulation. It’s one that centrist Democrats who otherwise might be convinced to support CFPB reform would be less likely to support, “unless they want President Trump’s own version of Richard Cordray,” said Adam White, a research fellow at the Hoover Institution and critic of the agency.
Yet some congressional Republicans already have disregarded the possibility of getting any Democratic support in the Senate and have recommended looking to the reconciliation process to get the bill signed. Those members include Hensarling and Sen. Pat Toomey of Pennsylvania, a conservative on the Senate Banking Committee.
Reconciliation is often used to move big ideological bills. But it is governed by specific rules limiting what can be included in the legislation, especially by the Byrd Rule that allows senators to object that a specific provision is not relevant for the budget purposes for which reconciliation was intended.
The key consideration is whether the Senate parliamentarian would judge that a particular measure was mainly fiscal in its impact, and that the non-fiscal effects were more incidental rather than essential to the measure.
“One has to train a proposal for the parliamentarian, tell the parliamentarian why they think this fits within the reconciliation rules,” said Martin Gold, a partner with Capitol Counsel LLC and the author of “Senate Procedure and Practice,” a primer on Senate rules.
Tailoring legislation to conform to those rules is a key consideration, as House Republicans learned in trying to pass a replacement for Obamacare through reconciliation.
That’s where it gets tricky. One change Republicans have sought would be to move the bureau’s funding stream to Congress. Then, Congress could cut funding, or attach strings to funding, to steer the bureau’s policies. But that option has since been judged as a bad candidate for reconciliation because it essentially would be considered a non-fiscal maneuver, one financial services lobbyist said.
A measure more likely to clear reconciliation would be to simply cut off the bureau’s funding altogether, a step projected to save the government more than $6 billion over 10 years.
But that would raise a separate problem, according to both supporters and critics of the bureau. The consumer protection laws the agency was tasked with enforcing would still be on the books, creating an enforcement mess and raising the question of what would happen if some banks sought simply to disregard the rules.
Republicans could transfer those authorities to another agency, such as the Federal Trade Commission, which is already preparing for such a possibility.
But that legislation would need Democratic support in reconciliation or any other legislation. If they refused to go along, the problem of unrepealed consumer laws would be a “real Pandora’s Box,” White said.
And not just because enforcement would be lax. “All these CFPB rules that have been put on the books would still lay around like loaded handguns” to be picked up by crusading liberal state attorneys general, White noted.
