Is the CFPB’s authority really ‘unprecedented’?
By Suzy Khimm,
BLOOMBERG It’s been at the forefront of “one of the most sweeping government interventions in private financial markets in decades.” Headed up by a single, unelected bureaucrat subject to Senate approval, the new agency was created amid much controversy with the intention of giving the federal government vast new legal and regulatory authority to protect consumers and stabilize financial markets.
The Consumer Financial Protection Bureau? Nope. The Federal Housing Finance Agency, which passed with strong bipartisan support in Congress and was signed into law by President George W. Bush in July 2008 as the housing market began to unravel. By that September, the FHSA took the ailing Fannie Mae and Freddie Mac into its conservatorship to help put the brakes on the housing meltdown.
Three years later, Democrats are trying to set up similarly structured agency to serve as a consumer watchdog for the financial sector. Created under Dodd-Frank, the Consumer Financial Protection Bureau was meant to extend regulation to a wider range of financial service firms that contributed to the 2008 meltdown, including mortgage brokers and payday lenders.
But this time, Republicans have dug in their heels, calling the CFPB an unaccountable, dangerous overreach of federal authority. At a Senate nomination hearing for Richard Cordray, Obama’s nominee for CFPB director, Sen. Richard Shelby (R-Ala.) put the agency’s basic power structure at the heart of his attack. “It grants the director unprecedented authority over the American people without any checks,” he said at the hearing on Tuesday. “No one person should have so much unfettered power over the American people … there is no worse time to get an unelected, unaccountable bureaucrat.”
Republicans have held up Cordray’s nomination by demanding that the CFPB be headed up by a commission, rather than a single director, among other changes that would weaken its authority. But Senate Democrats counter that the FHSA, along with the Comptroller of the Currency, were both headed by a single director subject to audits by the Government Accountability Office. “The FHSA was created virtually with same authority, on bipartisan basis … there was no discussion of preemption of constitution, or anything else,” said Sen. Jack Reed (D-R.I.) at the hearing.
In fact, some Republicans who’ve recently criticized the FHSA have accused the agency of not doing enough. In June, the agency’s inspector general concluded that the FHSA should have done more to respond to consumer complaints about potential mortgage fraud and foreclosure abuse. At the time, Rep. Spencer Bachus, GOP chair of the House Financial Services committee, agreed. “It is stunning that the conservator of Fannie Mae and Freddie Mac, which have received $150 billion in a taxpayer-funded bailout, had just two people receiving and processing customer complaints. ... Who knows how many reports of waste, fraud and abuse have gone unheeded and unaddressed?” Bachus wrote in a statement cited by the New York Times.
That’s not to say that the comparison between the new consumer finance watchdog and the FHSA is a perfect one. Part of the FHFA’s mission is to get Fannie and Freddie back on their feet so they Congress can figure out how to privatize them and take them out of the hands of the government altogether. The CFPB is meant to be a permanent addition to the financial-regulation system, ensuring that its responsibilities and oversight will remain far-reaching. And that difference is at the heart of the GOP’s claim that the agency, as it stands, shouldn’t be allowed to exist in the first place.