Why CFPB Opponents Have Changed Their Legislative Strategy

WASHINGTON — House Republicans aren't likely to cease their attacks against the Consumer Financial Protection Bureau anytime soon, but they appear to be swapping playbooks.

Opponents lost a big bargaining chip to force structural changes at the agency last summer when the Senate confirmed Director Richard Cordray. But while efforts to replace the director with a commission or to subject the agency to congressional appropriations may be on hold for now, lawmakers continue to push myriad piecemeal changes at the agency.

"Republicans are going through the seven stages of grief before they get to acceptance that the CFPB is going to be sticking around," said Edward Mills, an analyst at FBR Capital Markets. "If the agency is not going away, then you try to take a death-by-a-thousand-cuts approach, and that's what we're seeing."

The House Financial Services Committee debated the latest round of 11 proposals at a financial institutions and consumer credit subcommittee hearing Wednesday afternoon, including legislation to eliminate the agency's civil penalty fund, establish an independent inspector general and provide consumers the option to opt out of data collection practices.

On Thursday the full committee also passed several bills related to the agency, including one that would exclude manufactured housing retailers from the definition of a mortgage originator and another that would reduce some mortgage servicing and escrow requirements for community banks.

To be sure, the longer the agency is engaged in substantive work, the more likely it is for the critiques to become more substantive as well.

"The line between politics and policy is thin — they share many letters in common. I do think it's natural over time that as the bureau conducts more policy, the congressional oversight becomes more policy-focused. And that transition is a good thing," said Aaron Klein, director of the financial regulatory reform initiative at the Bipartisan Policy Center.

He added that feedback, particularly from lawmakers, plays a key role for regulators examining their own efforts.

"The CFPB is here to stay, and it's striving to be a data-focused financial regulator that accomplishes its mission in a way that's systematically different from the other regulators," said Klein. "As they try their new and novel approaches to regulation, feedback from key stakeholders is critical. No stakeholder is more important than Congress as the bureau enters into an iterative process to improve upon its effectiveness."

But the effort still provides a key messaging opportunity for Republicans ahead of the midterm elections, and allows them to keep pressure on the agency in a political environment not conducive to broader changes. It's highly doubtful that any of the provisions considered this week, even if they are passed on the House floor, will get picked up by the Democratic-controlled Senate or signed into law by President Obama.

"You're not fighting consumers having protections, you're turning it into a fight against government bureaucracy, which plays much more into the general concerns that the Republican base has," said Mills.

Narrower, more targeted attacks could also begin to draw limited support from Democrats, unlike previous efforts to pass larger structural reforms. For example, the House passed a large package of sweeping changes to the agency in February with the support of 10 Democrats. The banking panel vote last fall on those same measures cut down party lines.

"Republicans are trying to find ways to pick up Democratic votes," said Mark Calabria, director of financial regulation studies at the Cato Institute. "Some of this is born by the willingness of Democrats to stick together. On issues like derivatives, Republicans have been able to pick off Democrats, but they haven't been as successful with the CFPB."

In addition, the more tailored efforts simply keep the issue alive for future battles.

"If your ultimate endgame is to get rid of the agency or force major reforms, then discussions of smaller reforms make it easier to pivot back to the broader ones, rather than doing nothing at all," said Calabria.

Mills added that the narrower proposals, along with the latest criticisms over the some of the CFPB's employment problems, are useful in helping to build a narrative around the effectiveness of the agency. Critics frequently invoke concerns about transparency and accountability at the agency, for example.

"At this point Republicans are playing the long game — they're hoping their continued concerns about the CFPB will erode public confidence enough to question its ability to appropriately do consumer protection. They're trying to lay the groundwork for legislative change," said Mills. "I don't see that happening, but they recognize they're not going to get anything done in the near-term, so let's see what we can do to build a case for long-term."

Looking ahead, the upcoming elections could prove a key turning point in the debate. Control of the Senate hangs in the balance, and if Republicans win the chamber, the conversation could again turn to structural reform of the agency — even if any such changes are still unlikely to go into effect with Obama in the White House.

Sen. Richard Shelby, R-Ala., a long-time critic of the agency, is likely to resume the chairmanship of the Senate Banking Committee for two years if the chamber flips, due to term limit rules. (Sen. Mike Crapo, R-Idaho, the ranking member, has also voiced concerns about the agency, but the chairman, whoever takes the gavel, undoubtedly has more power to set the committee's agenda.)

"Many of these issues will come back to life if Shelby takes the chairmanship," said Calabria, who is a former Shelby staffer. "His first priority will be GSE reform, and his second priority will be CFPB reform."

Alternatively, if Democrats are able to squeak out a narrow majority in the chamber, it's less clear how, or in what form, the legislative attack on the CFPB will continue. The House is expected to remain controlled by a Republican majority, but how hard lawmakers would continue to push the issue with no support from the Senate is unknown.

"What's the strategy at that point — to continue to do these things for two years?" said Calabria.