Commentary

Ditch the Double Standard for New Consumer Agency

Forty-four Republican senators wrote to President Barack Obama last month demanding significant changes to the Consumer Financial Protection Bureau before they would approve a head of the new agency. These changes, which many Democrats supported in the previous Congress, would improve the transparency and accountability of the CFPB.

A little more than two years ago, prominent Democratic members of both the House and Senate introduced legislation proposing a five-person commission to oversee consumer financial protection. Their proposed agency was to be funded within the appropriations process — exactly as is currently being proposed by congressional Republicans. A letter signed by the major consumer groups strongly supported these bills.

Suddenly these same parties are maintaining that this exact same structure would be a gutting of the agency.

Some have argued that changing the CFPB from a single director to a board would turn the agency into a “lapdog” for the banking industry. While I would never claim math as my strong suit, I think it would actually be harder for special interests to sway an entire board of five persons than to influence a single individual. Even if Big Banking were to persuade two board members, a majority of three would still be able to conduct business.

Vulnerable to Influence?

The claim that a board would be more vulnerable to influence by the banking industry is especially bizarre given that the advocates’ favorite bête noire, the Office of Thrift Supervision, is the agency with a powerful single director, as is the Comptroller of the Currency.

Even if a board were easier to capture than an individual post, a board structure forces deliberation to occur in public. If one board member tried to steer rules toward an outcome favored by narrow interests, other board members could raise these issues during the board’s open deliberations. Such transparency is lacking when a single, powerful director can make decisions unchallenged and hidden from public view.

While Article I, Section 9 of the Constitution requires that any money drawn from the Treasury be the “consequence of appropriations made by law,” Congress has repeatedly found clever ways to avoid that. Funding the CFPB is only the latest, if perhaps the most egregious, example.

The Federal Reserve returns its excess funds, derived from the earnings from assets on its balance sheet, to the Treasury annually. The Dodd-Frank banking bill set up the CFPB to be funded out of that excess — explicitly removing it from the appropriations process and therefore from congressional oversight. (We have seen how well that has worked out for the Fed itself.) The Fed’s funding mechanism was never intended to create “free” money to pay for other agencies.

Avoiding Accountability

The core responsibility of governing is making hard choices. In today’s fiscal environment, it’s easy to conclude that such responsibility has been repeatedly dodged.

In removing the CFPB from the appropriations process, Dodd- Frank allows Congress to avoid the accountability that should come with governing. If one believes that Congress isn’t spending enough on a particular function, then the public always has the option of electing a new Congress.

An objection to subjecting the CFPB to the appropriations process, as is the Consumer Product Safety Commission upon which it is modeled, is that appropriators would starve the agency of funding. Yet regulators such as the Securities and Exchange Commission saw their budgets vastly expand under President George W. Bush and Republicancontrolled Congresses. The SEC budget doubled in Bush’s eight years.

It’s hard to find any government program that has withered on the vine. Has subjecting the Pentagon to appropriations ended overseas military operations? Everything in the budget is there because someone thinks it is important. The CFPB is no different.

Special Interests

The fact is that those opposed to bringing accountability and transparency to the CFPB aren’t concerned about the agency being captured by special interests. They simply want to make sure they are the interests doing the capturing.

Given that persons involved at the highest levels of the CFPB have received funding from trial attorneys, I am just as worried that the CFPB becomes captured by litigators as I am about it being unduly influenced by banks. A transparent multi- member board would allow such potential conflicts of interest to be appropriately aired in public.

Whatever its many failures, the fact remains that Congress is the closest thing Washington has to be being the voice of the people. The last thing we should be doing is engineering ways to further shield bureaucrats from the public.

Mark A. Calabria is director of financial regulation studies at the Cato Institute.