A group of 158 law professors and scholars on Tuesday defended the Consumer Financial Protection Bureau in a letter to top lawmakers, saying a bill to overhaul the Dodd-Frank Act would allow lax lending standards to creep back into the financial system.
The 19-page letter was signed by prominent names in consumer finance and academia, including Michael Barr, a former Treasury official and key architect of Dodd-Frank who is now at the University of Michigan; Joseph William Singer, a Harvard law professor; and Jay Westbrook, a law professor at the University of Texas in Austin and the co-author with Sen. Elizabeth Warren of a book on bankruptcy.
Earlier this month, the House Financial Services Committee approved the Choice Act along party lines, which would gut the CFPB and transfer primary responsibility for consumer protection back to federal prudential banking regulators. The bill is scheduled for a vote soon in the full House.
"The CFPB has been in the cross-hairs because it has been so effective in protecting consumers," the letter stated. "By overturning many of the key institutional safeguards against industry capture in Dodd-Frank," the Choice Act "would open the door for reckless consumer lending to flourish again. Nonbank lenders would escape federal supervision entirely."
The letter was sent to Senate Banking Committee Chairman Mike Crapo, R-Idaho, Sen. Sherrod Brown, D-Ohio, House Financial Services Committee Chairman Jeb Hensarling, R-Tex., and Rep. Maxine Waters, D-Calif.
The letter also describes how a provision allowing the CFPB's independent director to be removed at will by the president raises concerns that regulation could be used as a political tool.
"A president could attempt to achieve a short-term boost to the economy by reducing consumer finance regulation and loosening credit, leaving the costs of unsustainable credit to a future administration," the letter stated. "There is the possibility that the concentrated and well-heeled financial services industry lobby will pressure a president to curtail regulations through removal or the threat of removal."
Though the CFPB has been singled out by Republicans for having an independent director, the heads of six federal agencies also are removable by the president but only for cause. They include the Federal Reserve Board, the Office of Comptroller of the Currency, the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The Choice Act would also subject the CFPB's funding to the appropriations process, which drew opposition from the law professors.
"This was a hard learned lesson from the difficulties faced by the Office of Federal Housing Enterprise Oversight (OFHEO), which was subject to repeated Congressional pressure because it was forced to go through the annual appropriations process," the letter said.
A successor agency, the Federal Housing Finance Agency, was not subject to appropriations as a result, the letter stated.
"If the Bureau had to depend on Congress for its funding, it would face political pressure by its regulated entities which would use the Congressional budget process to push annually for deregulation," the letter stated. "Chronic underfunding and understaffing would be the predictable result of appropriations funding for the CFPB."
Several of the signers have connections to the CFPB, including Prentiss Cox, a former assistant attorney general in Minnesota and law professor at the University of Minnesota; Patricia McCoy, who helped form the CFPB and is a professor at Boston College Law School; and Christopher Peterson, a former senior adviser to the CFPB's director, Richard Cordray. Peterson is now a professor at the University of Utah.