Congress helped create the CFPB’s leadership crisis. It can fix it.

Source: https://www.consumerfinance.gov/

Source: https://www.consumerfinance.gov/

By C. Jarrett Dieterle

Over the past few days, the D.C. news cycle has been dominated by the palace intrigue over who should be properly recognized as acting director of the Consumer Financial Protection Bureau. But few have considered Congress’ role in creating this situation—and the fact that it could now help fix it.

In the wake of outgoing CFPB Director Richard Cordray stepping down, President Donald Trump tapped Office of Management and Budget director Mick Mulvaney to serve as CFPB’s acting director while a permanent head was selected. But in a surprise twist, Cordray declared that the agency’s chief of staff, Leandra English, was actually the CFPB’s new leader.

This is a bit of a mini-constitutional crisis, as it appeared that both Mulvaney and English might enter into a power struggle over control of the agency. So far, CFPB’s general counsel has sided with Mulvaney, and in a memo advised all CFPB staff to “act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” English, for her part, initiated a lawsuit asking a federal court to issue a restraining order preventing Mulvaney from taking the post, which the court denied.

Legal scholars have been weighing in on the merits of who is legally correct in this scenario, and the dispute involves both constitutional as well as statutory concerns. (Jonathan Adler has a summary of the various legal positions and opinions over at The Volokh Conspiracy; for what it’s worth, I think Adam White has the best of the argument when he concludes that the Trump Administration should prevail).

Lost in all this back-and-forth, however, is that fact that this fiasco was both imminently predictable and preventable. The CFPB is sui generis in America’s system of governance in that it has unprecedented powers that are mostly incapable of being checked by the other branches of our government. What’s happening right now illustrates this: the outgoing agency leader is attempting to implement his own preferred succession plan over the wishes of the other political branches.

The CFPB was created by the 2010 Dodd-Frank Act, which dictated that it be led by an individual director. To ensure the agency’s independence, the act clarified that the director could only be removed by the President “for cause,” which insulates the agency’s leadership from presidential accountability. While “for cause” protection is common in so-called “independent agencies”—other examples include the SEC, FCC, or FTC—it is unprecedented for an agency that operates under a single director rather than a multi-member commission structure.

Last year, a panel of the D.C. Circuit found CFPB’s structure unconstitutional for this very reason (that decision is currently on appeal to the entire D.C. Circuit, which has yet to rule on it). By establishing an agency that is led by a single individual who cannot be removed except in special circumstances, Congress muddied the waters when it comes to who is ultimately in charge of the CFPB—the President or the agency’s director.

The uniquely unaccountable nature of the CFPB does not end with its leadership structure, either. Dodd-Frank specified that the agency was also to be funded outside Congress’ normal appropriations process, via revenues derived from the Federal Reserve System. This prompted the D.C. Circuit to quip that the agency’s funding structure was “extra icing on an unconstitutional cake already frosted.” This means that Congress succeeded in creating an agency that was unaccountable to both the executive and legislative branches.

This failure to ensure accountability at the CFPB is partially responsible for the current leadership struggle. In fact, Barney Frank, one of the principal drafters of Dodd-Frank, has suggested that the CFPB’s plan of succession was deliberately designed to insulate its leadership from presidential control. And now that a leadership struggle has occurred, both the President and Congress are mostly powerless to respond to it in effective fashion.

Despite its errors in creating the CFPB, it’s not too late for Congress to fix its mistakes. During the current Congress, the House has considered legislation that would convert the CFPB from a single-director model to a five-member commission structure, with each commissioner serving five-year staggered terms. Alternatively, the final version of the CHOICE Act, which passed the House earlier this year, clarifies that the CFPB director is fireable at will by the President. The CHOICE Act also would make the CFPB subject to the normal appropriations process.

Even if broad-sweeping Dodd-Frank reforms like the CHOICE Act are not politically feasible right now, Congress should at least pursue these discrete structural reforms. In particular, converting the agency to a commission model would help avoid succession crises like the one the agency is currently undergoing, as the staggered terms of the commissioners would reduce surprise retirements and deemphasize the importance of any one officer or director at the agency. It would also pull the agency’s ethos in the direction of a truly non-partisan, independent entity, rather than a “political vehicle” masquerading as an independent agency.

If making the CFPB truly independent is not desirable, then it should be treated like any other executive branch agency and have a director that the president can remove at will. Such a goal could be bipartisan, too, as even Barney Frank’s former legislative aide has argued that “Congress should never again create an ‘independent’ agency with a sole director, particularly one not subject to the congressional appropriations process.” Likewise, both parties should be motivated by fears of the other party controlling as unaccountable and powerful a position as CFPB director.

The CFPB has been allowed to operate as a regulatory unicorn for far too long, and its recent leadership struggle is merely a symptom of its unaccountable structure. Congress created this mess, and now it’s time for it to fix it. 

C. Jarrett Dieterle is a governance project fellow at the R Street Institute.