The Senate is slated to vote this week on the nomination of Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB).
If confirmed, the former Ohio attorney general would become the envy of regulatory zealots far and wide—wielding unparalleled powers with virtually no accountability. President Obama, of course, thinks such regulatory hegemony will benefit consumers, but those who embrace a balance of powers within government know better. All of which is to say that Cordray ought to occupy himself in some other way until Congress remedies the bureau’s structural flaws.
Spawned by the vast Dodd–Frank financial regulation statute, the CFPB enjoys sweeping powers over all manner of consumer credit, including consolidated and expanded authority over consumer financial products and services previously wielded by seven federal agencies. We’re talking credit and debit cards, mortgages, student loans, savings and checking accounts, and more.
(None of which had anything to do with the financial crisis, by the way. But that didn’t prevent Messrs. Dodd and Frank from exploiting the recession for regulatory gain. If anything, the bureau’s meddling will make financial products and services harder to obtain and more expensive to use.)
Fortunately, the bureau is statutorily barred from imposing new regulations until a director is confirmed. And that’s the very leverage that bureau critics are relying upon to force a restructuring. Although the Senate banking committee approved Cordray’s nomination in October, a contingent of Republicans has wisely pledged to oppose any nominee until the bureau’s autonomy is curtailed.
The problem is that the CFPB is ensconced within the Federal Reserve. Therefore, its budget is not subject to congressional control. The bureau’s status within the Fed also effectively precludes presidential oversight.
Its accountability is also minimized by the vague language of its statutory mandate. It is empowered to punish “unfair, deceptive and abusive” business practices. While unfair and deceptive have been defined in other regulatory contexts, the term abusive is largely undefined, granting the CFPB officials inordinate discretion.
These sweeping and virtually unconstrained powers of the CFPB would be a matter of concern no matter who heads the agency. Rather than rush to confirm a director, the Senate should—as has already been pledged by 44 of its members—properly limit the authority he would wield.