A version of this article originally appeared on Medium. It has been edited lightly for clarity.
The Consumer Financial Protection Bureau is transforming before our eyes.
The independent federal agency has a new (ahem, not Senate-confirmed) leader whose goals and motivations are far removed from the agency’s mission to achieve and maintain a fair, fraud-free financial marketplace for consumers.
A negative outlook for the CFPB under its new leadership is warranted. And concern for its future is even more justified if its opponents in Congress and the financial industry manage to strip the agency of its current funding source.
The CFPB’s foes want to remove the bureau from under the Federal Reserve System, where it is housed and funded. They want to relegate it to the politically charged, corporate lobbyist-influenced congressional appropriations process. This move would sabotage the CFPB’s independence and its critical function to oversee the consumer finance markets.
This terrible idea is one of hundreds of poison pill policy riders designed to undermine public protections that have been dropped into U.S. budget legislation. The House passed spending legislation in September that contained this damaging provision, and Senate appropriators have a similar measure in front of them. This “policy rider” method of rewriting our laws is madness, and is as reckless as the attempted scheme to rework CFPB’s own budget process. Congress must protect the bureau as budget negotiations heat up — yet again — in coming weeks.
One only has to glance at other so-called independent federal agencies to see how their congressional funding arrangements damaged their ability to do their jobs. Over decades, these regulators suffered from financial neglect at lawmakers’ hands until disaster hit their sectors and harmed the public.
Since its founding in 1972, the Consumer Product Safety Commission, an agency tasked with monitoring the safety of 15,000-plus types of consumer products, was callously under-resourced by congressional appropriators and presidents. It suffered for decades without a meaningful budget increase until after the 2007 “Year of the Recall,” when a record number of lead-laden toys and other dangerous consumer products saturated the market. After which, Congress passed transformative legislation which greatly enhanced the CPSC’s power and its budget.
Similarly, the Securities and Exchange Commission, criticized for its lack of preparedness to respond to or prevent the worst of the 2007 financial crisis, was denied requested funds by Congress in the 1990s. During that time, investment companies and financial advisers — elements of the financial markets that the agency was charged to oversee — experienced monster growth. Eventually, in the fallout of their respective disasters, Congress replenished the SEC and CPSC coffers and provided them with new resources and authority to avoid future messes.
The country could have avoided or minimized the record recalls of unsafe consumer products and the mortgage meltdown and bank failures of the financial crisis — if only the government regulators had been adequately resourced. Undeniably, the financial neglect of the SEC and CPSC contributed to these disasters.
In a letter last week, 40 senators stood up for the CFPB’s independent funding. Must other lawmakers with pro-industry impulses learn the lesson yet again with the CFPB, an agency not yet a decade old?
The consumer bureau is equipped through its current funding and legal authorities to monitor the ever-changing consumer finance market, provide proper guidance to financial institutions and admonish those that break the laws. What will happen if it loses its reliable funding source and is unable to respond to a future Wells Fargo-like fraud scandal, stealth illegal fee charges on debt relief products, discriminatory auto lending practices or other predatory high-cost loans that ruin people’s financial lives? Consumers will suffer.
The CFPB needs the independence that Federal Reserve funding provides to pursue its public-interest mission to protect the financial markets and its participants. Its independence is critical because the CFPB’s mission and goals often diverge from the rich, politically powerful financial industry interests it oversees.
Unsupported and disingenuous claims that the bureau’s independence has turned it into a “runaway” agency with no accountability persist. Yet, in its place within the Federal Reserve System, the bureau must respond to the concerns of other financial regulators, including the Financial Stability Oversight Council, which is tasked with reviewing its actions. It is also answerable to lawmakers, including through statutory requirements to file a slew of annual reports recounting its work to Congressional committees.
Congress, of course, has the ultimate authority to shift the CFPB’s responsibilities, structure and mission. But if it does, it should do so through legislation that progresses through proper hearings, committee consideration and votes.
Sliding a rider that would unravel the CFPB into an unrelated budget bill reeks of shady political maneuvering and deceives the public.
Certainly, lawmakers are right to be watchful of the consumer bureau’s activities, but they must let go of the desire to control this agency through its purse strings. That would only hurt us all later.