Sen. Ted Cruz has made killing the Consumer Financial Protection Bureau one of his key stances on banking policy during his fight to become the Republican presidential nominee.
While that battle is still uphill — Donald Trump won New York handily on Tuesday, boosting his delegate lead over Cruz — any attempt to destroy the CFPB could be an even tougher challenge if he's eventually elected president. Democrats remain fiercely supportive of the CFPB, opposing any structural changes to its leadership or funding, and would undoubtedly fight hard against stronger measures.
Yet the CFPB remains vulnerable, especially considering a U.S. appeals court is examining the constitutionality of its structure, and it has proven to be a surprisingly popular target for Republican attacks.
If Cruz is elected, there are several ways he could weaken or eliminate the agency:
Remove CFPB Director Richard Cordray "for Cause"
A crucial element of PHH's lawsuit against the CFPB turns on the constitutionality of a provision of the Dodd-Frank Act that only allows a CFPB director to be removed "for cause." The firm has argued that a director should serve at the pleasure of the president.
Leaving aside that legal fight, some argue that a President Cruz — or any Republican victor — could attempt to argue that Cordray should be removed "for cause" before his term ends in 2018. While the provision has rarely been invoked and the cause would have to rise above Cordray's political leanings, some say there's enough room for Cruz to act.
"The allegations of institutional discrimination at the CFPB that have been made by a number of whistle-blowers that have testified in Congress are sufficient to remove the director and deputy director 'for cause,' " said J.W. Barrett, an assistant professor of law at George Mason University and former senior counsel at the House Financial Services Committee.
Others disagree. Alan Kaplinsky, chair of the consumer financial services group at Ballard Spahr, said, "I don't think either the current president or President Cruz, if he becomes president, is ever going to have sufficient grounds for removing him."
Dennis Kelleher, president and CEO of the investor advocate group Better Markets, said the CFPB's internal issues are not "remotely close" to a reason for "removing the director for cause."
"No agency or department is going to get everything right the first time and no agency or department is going to be flawless or perfect in its hiring practices and the execution of its duty," Kelleher added.
Restructure the Agency
Arguably Cruz's most likely tactic — barring simply trying to pass a bill repealing the agency's existence — is to support efforts to change its structure and funding.
Republicans are already pushing bills that would subject the CFPB to congressional appropriations and replace its single director with a five-member commission.
The House Financial Services Committee passed a bill last week that would require Congress to set the agency's budget.
"Every government agency should be accountable to the elected representatives of 'We the People' and the CFPB should not be an exception to that rule," said Chairman Jeb Hensarling, a fellow Republican from Texas.
Still, the appropriations fight seems unlikely to prevail barring major defections from Democrats (who are likely to at least retain a strong minority presence in the Senate after the election, even if they don't win control of the chamber).
Industry observers agree that if any legislative change is likely to succeed, it's a more targeted measure to change the agency's leadership structure.
It's a "potentially viable alternative" as opposed to an outright dismantling of the agency, Kaplinsky said.
"There is too much power wielded in one director," he said. "One person should not have that much control."
But consumer groups would continue to oppose such a move.
Jim Lardner, the communications director for Americans for Financial Reform, a coalition of more than 200 consumer groups, said the single-director structure makes the agency more effective.
"Once people thought about how well some commissions have been functioning — the Securities and Exchange Commission for instance — they might see that proposal for what it is, which is an attempt to undermine the effectiveness of the agency and have it wind up in a near perpetual state of partisan gridlock which is what seems to happen at some of those commissions," Lardner said.
Wait to Make His Own Appointment
While passing legislation would be tough and removing Cordray for cause could be even harder, Cruz would have the opportunity to nominate a successor in 2018.
Cruz could take advantage of the fact that there is only a single director of the agency and attempt to nominate someone who would subvert the agency's goals.
Oliver Ireland, a partner at Morrison & Foerster, said Cruz "probably" could cripple the agency if he were able to get his nomination through the Senate.
David Vladeck, a professor of law at Georgetown and former director of the Federal Trade Commission's Bureau of Consumer Protection, said Cruz could appoint an acolyte who, if confirmed, could "systematically dismantle everything that Richard Cordray has done."
But it could also be a challenge.
For one thing, Democrats like Sen. Elizabeth Warren, the agency's founder and defender, would undoubtedly oppose any nominee they perceived as insufficiently dedicated to consumer protection.
Even if a person were confirmed, they might find it hard to undo what Cordray has done.
"The thing is with this agency, the second director will have an unprecedented task, because the first director established various rules and policy governing investigations and proceedings," said Jennifer Lee, a partner at Whitney & Dorsey and former CFPB enforcement attorney. "Even if the second director were a Democrat, it is an open question in what he or she could then change in the founding documents of the agency."
At best, Cruz might at least be able to leave the agency without a permanent director, which "might significantly impair its operation," Ireland said.
Subject It to a More Rigorous Cost-Benefit Analysis Test
While the CFPB conducts an internal cost-benefit analysis for its proposals and rules, one question is whether the agency could be made subject via an executive order to the cost-benefit analysis rules dictated by the Office of Information and Regulatory Affairs.
That office, overseen by the executive branch, could then come to a determination that the costs of some rulemakings would outweigh the benefits.
The president could "probably" subject the CFPB to cost-benefit analysis through executive order, but the issue hasn't been fully resolved, Vladeck said.
Lee also said that since the bureau often regulates through enforcement rather than rules, a cost-benefit analysis of rulemakings might be limited in reining in the CFPB.
"The issue of the regulatory cost-benefit analysis in rule making is beside the point since most of the complaints about the CFPB are geared towards the bureau's enforcement agenda," Lee said. "The regulations are few and far between compared to the enforcement actions coming down."
Repeal the CFPB Outright
Cruz's likely first choice would be to repeal the Dodd-Frank in its entirety, including the section that created the CFPB.
Since the beginning of his campaign, Cruz has been opposed to Dodd-Frank and specifically the CFPB.
"The agency continues to grow in power and magnitude without any accountability to Congress and the people," Cruz said last year when he introduced legislation to repeal the agency. "The only way to stop this runaway agency is by eliminating it altogether."
Bashing the CFPB has become a recurring theme on the campaign trail.
"In the days that follow we will take on the EPA and the CFPB and the alphabet soup of federal agencies that have descended like locusts on farmers and ranchers and small businesses killing jobs all across this country," Cruz told Iowa voters in January.
A full repeal is the simplest solution for Cruz.
"In theory, it is very easy to get rid of because for the first part it was very duplicative in the first place," Norbert Michel, a research fellow at the Heritage Foundation, said about the CFPB. "You could simply have a financial division within the Federal Trade Commission" be in charge of consumer protection.
Yet of all the options presented here, this is the least likely to succeed. Democrats would be united in opposing such a move, and even some fellow Republicans might balk, said Lardner.
"If President Cruz actually tried to abolish the CFPB, he would take some terrible heat from the voters of his own party. ... I suspect a lot of Republicans in Congress if they did a little test marketing of the idea they would tell him to buzz off," Lardner said.