CFPB Suffers Identity Crisis

The three branches of government have been battling over the CFPB from the day the agency was created in the Dodd-Frank Act.

That battle is far from over.

Policymakers continue to fight over how aggressive the agency should be, while attorneys haggle in federal court over whether the agency’s structure is constitutional and whether any of its actions are legal.

And in the latest wrinkle, the agency’s own director, Kathy Kraninger, contends that her position violates the U.S. Constitution, but that everything that the three directors have done since the agency was created still is legal.

In letters to House and Senate leaders, as well as a brief asking for a U.S. Supreme Court review of the agency’s structure, Kraninger contends that the CFPB’s director should be permitted to be removed by the president for any reason.

Under current law, the director may only be removed for cause.

The fight involves all three branches of the federal government and has created an air of uncertainty over anything the agency does.

In creating the bureau, Congress attempted to insulate the agency by having a single director who could only be removed by the president for cause.

That has not worked, CUNA President/CEO Jim Nussle said in a recent letter to leaders of the Financial Services Committee.

“Proponents of the CFPB often argue its present structure renders it politically independent; but in less than a decade, the CFPB has proven itself without a doubt to be independent only from the minority political party,” he wrote.

Credit union trade groups have argued that the agency should be run by a commission, rather than a single director.

“NAFCU has long held the position that, given the broad authority and awesome responsibility vested in the CFPB, a five-person commission has distinct consumer benefits over a single director,” Brad Thaler, the trade group’s vice president of legislative affairs wrote in a recent letter to the House committee. “Regardless of how qualified one person may be, a commission would allow multiple perspectives and robust discussions of consumer protection issues throughout the decision-making process.”

The dispute over the agency’s structure flared recently at a House hearing on the semi-annual report from the agency.

House Financial Services Chairwoman Maxine Waters (D-Calif.) told Kraninger that the agency’s new position empowers the people the CFPB should be targeting.

“This gives ammunition to bad actors,” Waters said.

However, committee ranking Republican Patrick McHenry of North Carolina praised that decision.

He said that in the past, “Limitless power has never been an issue for my Democratic friends.”

But Rep. Carolyn Maloney (D-N.Y.) said that Congress purposely gave the CFPB independence. She said that Kraninger’s decision was “disrespectful of Congress.”

The federal court battle is playing out on several fronts and ultimately could be decided in the U.S. Supreme Court.

In one suit, the CFPB had issued a civil investigative demand to Seila Law, a law firm, as part of its investigation into whether debt-relief companies were engaging in unlawful acts or practices.

The law firm challenged the constitutionality of the section of Dodd-Frank that created the CFPB, saying that the director’s position was unconstitutional.

The court sided with the bureau at the district and appellate level, but the law firm has asked the Supreme Court to take the case.

And House Democrats recently decided that if Kraninger is not going to defend her agency, they will.

They are attempting to defend the CFPB structure if the Supreme Court accepts the case.

In its filing, the House noted that its Bipartisan Legal Advisory Group, made up of three Democratic leaders and two Republican leaders voted to allow the House to try to intercede in the suit.

The two Republicans in the group, House Minority Leader Kevin McCarthy (R-Calif.) and Minority Whip Steve Scalise (R-La.) voted against House participation.

“This case presents an issue of significant importance to the House: the constitutionality of the for-cause removal protection that Congress enacted to provide the CFPB Director with a measure of independence, consistent with the agency’s functions as a financial regulator,” the House’s attorneys wrote.

They said that courts have recognized that in order to “shield” certain agencies, a degree of independence is needed.

They said that the president still maintains control over the agency, since the director may be removed for failing to enforce the nation’s consumer laws.

But in a separate case, a payday lending company is arguing that if the structure of the agency is illegal, everything the agency has done since it was created also is illegal.

All American Cash Checking and Mid-State Finance, a Mississippi-based company is asking the Supreme Court not only to rule on the constitutionality of the agency, but to rule that its actions are invalid.

“It matters little if this Court declares the CFPB unconstitutional but prevailing challengers, such as All American, receive no meaningful relief in their case,” the company’s attorneys, who include former Solicitor General Theodore Olson, said, in asking the court to take up their case.

Nussle agreed that the single-director structure does not provide enough oversight and accountability.

He said that the CFPB’s approach to regulation is overly broad, resulting in credit unions being punished for the misdeeds of others. He said that the agency should work with the NCUA and transfer consumer protection supervision to that agency.

Thaler said that since the enactment of Dodd-Frank, more than 1,500 federally insured credit unions have closed or have merged with other credit unions.

“A large majority of those credit unions that closed or merged were small in asset size, and as such, could not afford to comply with all the rules promulgated by the CFPB,” he added.