Last month marked the one-year anniversary of the Consumer Financial Protection Bureau (CFPB). At the time the Bureau was created I predicted that it would be a bureaucratic train wreck: an institution that is almost perfectly designed to manifest all of the worst pathologies that scholars of regulation have identified over the past several decades. Unfortunately, its operations to date have confirmed those fears.
The institutional structure of the CFPB is novel in American history—not merely an independent agency, it is an independent agency tucked inside another independent agency (the Federal Reserve). Its decision-making is not only independent of any review by the President or Congress, but also from the Federal Reserve itself. Its budget is independent from the congressional appropriations process and is instead drawn directly from the operating revenues of the Federal Reserve, a sum that will rise to 12% of the Federal Reserve’s operating expenses by 2013 (an estimated budget of $448 million). The only check on CFPB’s power is the power of the Financial Stability Oversight Council (FSOC) to veto actions by the CFPB but even then the veto can be exercised only by a 2/3 vote of the Council and only if the proposed action would seriously threaten the safety and soundness of the American financial services system.
Unlike most independent agencies the CFPB is not headed by a multi-member commission: even the Federal Reserve has a multi-member commission structure. Instead, it is headed by a single director appointed for a fixed term of 5 years and removable only for cause, such as corruption or complete dereliction of duty. Its powers are vast and vaguely defined: the power to regulate or even ban any product or loan term that it considers to be “unfair, deceptive, or abusive,” to engage in rule-making, or to bring litigation, including seeking penalties of up to $1 million per day for violations.
As currently structured, CFPB had only one meaningful democratic control—the power of the Senate to confirm the Bureau Director. Yet even this tiny shred of democratic control was thrown out the window by President Obama’s decision to end-run this check and illegally appoint Richard Cordray as the acting director, even though Congress was not in recess.
What may be most striking about the CFPB is not just its extraordinary combination of power and unaccountability—although it may be the single most extreme combination of power and unaccountability in American history (except for those that have been struck down as unconstitutional). …
An agency with no oversight placed inside another agency with no oversight (that is actually a group of big private banks) that has essentially carte blanche power over the economy in general and other banks in particular - sounds like a Keynesian statist’s dream come true.
Read on to learn how the CFPB has already been the nightmarish obstruction to economic progress (to the less well off and connected in particular, of course) we all knew it would be.
Little-known fact: the “CF” in “CFPB” actually stands for “clusterf*ck.”