Accountability and the Bureau of Consumer Financial Protection

Some industry and political actors oppose the Consumer Financial Protection Bureau (CFPB) on the grounds that its institutional design ensures its lack of accountability. Specifically, opponents point to the CFPB’s regulatory and financial independence and to the fact that a single director heads the Bureau rather than a bipartisan panel of commissioners. But to focus on the Bureau’s financial independence and single director misses the distinctive political deal struck when Congress created the CFPB. The CFPB has been uniquely and intentionally structured to insulate it not only from interest group influence and executive interference, but also from congressional control, while at the same time requiring the Bureau to share its regulatory space with numerous political actors. The Bureau’s independence is greatest when it issues regulations, but it is much less independent (and so more accountable) when viewed as an enforcement agent. While the CFPB holds nearly exclusive enforcement authority over large financial institutions, its ability to examine even these “large banks” is shared with prudential regulators; moreover, the CFPB must rely on the relevant prudential regulator to enforce consumer financial protection regulation as against banks and other financial institutions with assets of $10 billion or less and on the FTC as a contiguous regulator of “covered persons” that are not banks. Given that regulation is only as effective as regulators are willing to enforce the law in the books, this shared enforcement jurisdiction holds the key to the CFPB’s accountability to political and industry forces. Because the Bureau shares enforcement jurisdiction with the Office of the Comptroller of the Currency, the National Credit Union Administration, and other bank regulators, as a practical matter it will also have to take prudential regulators’ concerns into account when promulgating regulations. Although only the Financial Stability Council can veto a regulation promulgated by the Bureau, CFPB regulations might well be undermined by other regulators’ inaction as enforcement agents. Prudential regulators cannot alone veto regulation issued by the CFPB, but they can comment in the public record, lobby for the Council to set the rules aside, and try to thwart enforcement efforts. Moreover, although the CFPB is financially independent and headed by a single director, Congress can exert influence on the Bureau through its influence on other administrative agencies as well as its power to reverse CFPB regulations legislatively and modify or repeal the legislation that created the Bureau. The CFPB’s design, while unusual, it is not anti-democratic. Like Ulysses tied to the mast, the institutional design of the Bureau works like a pre-commitment device and permits the Bureau to rise above the client politics that normally surround financial regulation and protect the diffuse interests of consumers, even after concerns about the subprime mortgage crisis abate