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CFPB the “Godzilla” of regulators? Not so much

May 23, 2011 | | Comments Comments Off

It’s “the most powerful regulatory agency that’s ever been put together,”  “the most powerful agency ever created,” and  it “doesn’t have to explain what it does to anybody.”

Except none of that is true.

Critics are trying to make the Consumer Financial Protection Bureau out to be the job-killing Godzilla of regulators, but they’re way off the mark, as I wrote in “Banks attack consumer safeguards.”

I’ll quote at length from Elizabeth Warren’s written testimony, which she’s scheduled to submit tomorrow to the House’s Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs:

I have been told that if you say anything in Washington often enough, it is eventually treated as fact – regardless of whether it is true or false. While making baseless claims might be shrewd tactics for those who want to undermine the Bureau’s work, they are flatly wrong. The CFPB’s jurisdiction is fundamentally limited to consumer financial products and services. Even within the world of consumer finance, huge sectors, including investments and insurance, are explicitly excluded from its jurisdiction, left instead to other state and federal regulators. The scope of the CFPB’s authority is carefully limited.

False claims about CFPB’s power also ignore the structural oversight and accountability that limit the reach of the CFPB. Like all other agencies in the federal government, the CFPB is subject to the requirements and limitations of the Administrative Procedure Act. We are one of only three agencies anywhere in government (and the only banking regulator) that is required to conduct SBREFA panels, a process to gather input directly from small businesses about the potential impact of proposed rules. And we are also specifically required to consider the benefits and costs of any proposed rules to consumers and providers. The CFPB’s activities are subject to judicial review, ensuring that the CFPB operates within the constraints set by Congress and the U.S. Constitution.

In addition to being subject to judicial review, the Bureau is the only bank regulator whose rules can be overruled by a council made up of other federal agencies. In an unprecedented restriction unlike that on the authority of any other Federal financial regulator, Congress determined that a two-thirds majority of the banking regulators and other members of the Financial Stability Oversight Council can veto any rule issued by the consumer bureau if the council determines that it would put the safety and soundness of the banking system or the stability of the financial system at risk. And, of course, like with any federal agency, Congress can always overturn the Bureau’s rules if the legislature disagrees with our judgments.

The CFPB is also the only bank regulator that is expressly limited in its ability to determine its own funding levels. If the Office of the Comptroller of the Currency believes it needs more funds to hire more examiners, it can raise more through assessments on the industry. But the consumer agency’s independent funding is statutorily capped at a portion of the Federal Reserve System’s operating expenses. If the CFPB concludes that it needs additional funding, it must persuade Congress to provide that funding.

Other forms of oversight exist as well:

1)      The CFPB must submit annual financial reports to Congress.

2)      The CFPB must report to Congress twice each year to justify its budget from the previous year.

3)      The Director of the CFPB must testify before and report to Congress twice each year regarding the CFPB’s activities.

4)      The GAO must conduct an audit each year of the consumer bureau’s expenditures and submit a report to Congress.

5)      The CFPB must submit its financial operating plans and forecasts and quarterly financial reports to the Office of Management and Budget.

6)      The Inspector General of the Federal Reserve Board (and the Inspector General of the Treasury Department, during this interim period) have been charged with reviewing the CFPB’s activities to inform Congress and the public about the consumer bureau’s work.

The formal restraints over the agency are substantial, but informal restraints are significant as well. The financial services industry has substantial resources to ensure that its views about the CFPB and its work are well known and fully considered.

Recent proposals to alter the CFPB’s structure – including those that the House Financial Services Committee recently passed – overlook the many constraints already in place. The work facing the new bureau is very challenging; additional restrictions would undermine the consumer bureau before it even begins its work of protecting American families.

Proposals to change the consumer bureau have been put forward in the name of accountability. But accountability is ultimately about being responsible for getting a job done on behalf of American families. Those families know that they are held accountable every day. They have to pay their credit card bills and student loans. They see money disappear from their checking accounts when they make a mistake. And, as millions of families have witnessed first-hand in the past few years, when they default on mortgages they cannot afford, they lose their homes. American families expect to pay what they owe, but they also want to make sure that the rules are fair and followed. They want an agency that will be accountable for getting that basic job done, and, so long as it has the tools, the CFPB will be that agency.

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