Should the Consumer Financial Protection Bureau Be an Autocracy?

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The creation of a Consumer Financial Protection Bureau stirred more controversy than any other part of last summer's financial regulation bill. Consumer advocates loved the idea, while banks found it an excessive measure that would constrain their ability to respond fully and swiftly to what their customers wanted. But one aspect of the bureau that makes it even more controversial is its leadership structure. Rather than create a board or commission that would approve new rules, it would focus the new agency's power in a director. Republicans held a hearing on Capitol Hill today to discuss legislation to create a commission instead.

The legislation was offered by House Financial Services Chairman Spencer Bachus (R-AL). It seeks to establish a bipartisan commission of five members at the Consumer Financial Protection Bureau. There would still be a leader -- a chair of the commission -- but a group would be in place to discuss, debate, and vote on rulemaking.

In fact, the House's original financial reform proposal (.pdf), authored by then Chair Barney Frank (D-MA), included precisely this sort of commission. But the final regulatory package mostly accepted the Senate's version of the legislation, which included only a director.

Rep. Carolyn Maloney (D-NY) doesn't like the new Republican bill. At one point, she railed against it, saying that other regulators provide similar power to directors. She named the Federal Reserve, Commodity Futures Trading Comission (CFTC), and Office of the Comptroller of Currency (OCC) as examples. But this isn't really true.

First, the Fed does have a chair. But its monetary policy is conducted by its Federal Open Market Committee. Other decisions are agreed upon by its Board of Governors. In fact, its chair does not have rulemaking authority. Similarly the CFTC has a commission, so it's a little unclear why Maloney uses it as an example. Finally, the Comptroller of Currency does have the ability to make rules, but when it does so, it generally coordinates with the Federal Deposit Insurance Corporation, Federal Reserve, and OTS. Other regulators also have a commission structure. Some more examples include the Securities and Exchange Commission Federal Trade Commission. So it actually looks like having a commission is the status quo.

This contrasts with the framework for new consumer bureau. It will create rules to govern consumer financial protection without the help or consent of other regulators. If just a director is in place to approve rules, then that's an awful lot of power for one person to have. But Rep. Maloney prefers this, saying:

A commission would only lead to gridlock, and in my opinion inaction, that would only make it more difficult to react to the regulatory disparity between banks, credit unions, and their less regulated competitors.

The fear of "gridlock" might also be what an authoritarian regime worries about. In fact, having leaders with different opinions who decide on laws is at the very heart of democracy. The theory goes that the diversity of ideas leads to finding the best solutions to problems, and reasonable people will see past partisan politics. If one person can approve rules, then those regulations could heavily reflect his or her opinions, which may sometimes disregard compelling arguments that provide an alterative view.

But there's also a practical point here that it's a little surprising Democrats won't embrace: what happens when Republicans rule again? For now, it's easy for them to imagine a very left-leaning director providing the sorts of new regulations that Democrats would embrace. But if they were to lose the White House and Senate in 2012, then Republicans could put a far right-leaning director in place, who could effectively nullify those rules and create new regulations that favor free market views.

Having a commission in place would be a guard against all of the problems above. It would ensure that one person did not attain too much regulator power. It would also provide the requirement that minority views are heard and considered. Maloney is right about regulations being a little harder to pass with a comission. But that's the way it should be. New rules should not be easily adopted, but the result of vigorous, thoughtful debate.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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