What Will Happen to the Consumer Financial Protection Bureau?

A federal court has ruled the agency’s structure is unconstitutional.

Senator Elizabeth Warren with the CFPB's director, Richard Cordray
Senator Elizabeth Warren with the CFPB's director, Richard Cordray (Jonathan Ernst / Reuters)

After a spate of recent activity which has included introducing long-awaited regulations for payday lenders and prepaid cards and a nearly $200 million fraud settlement from Wells Fargo, the Consumer Financial Protection Bureau must now face a new challenge—more oversight.

On Tuesday, a Washington, D.C. circuit court found the structure of the CFPB to be unconstitutional. More specifically, the court took issue with the inability for other arms of the government to review or rebuke the Bureau’s judgements or actions and the unilateral power imbued in the CFPB’s director—currently Richard Cordray.

The judgement states:

The Director enjoys significantly more unilateral power than any single member of any other independent agency. By “unilateral power,” we mean power that is not checked by the President or by other colleagues. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.

The court then goes on to proclaim that the director of the CFPB is given more power and autonomy than the speaker of the house, senate majority leader, or even a Supreme Court justice.

The Consumer Financial Protection Bureau—which was brainchild of Senator Elizabeth Warren—was created in the wake of the financial crisis by the Dodd-Frank Act, the legislation meant to reform the financial sector and protect the public from predatory and dangerous practices. Title X, the section of the Act which calls for Bureau’s formation, states that a director will be appointed by the President and confirmed by the Senate. The Bureau then has the ability to “administer, enforce, and otherwise implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance.” But in those endeavors, the Bureau and its director are not directly subject to oversight from any of the branches of government. The autonomy of the CFPB is, in some ways, singular. But in others, the setup of the CFPB is similar to that of the Federal Reserve. The Fed’s goals and purpose—to establish maximum employment and stable prices—are set by Congress, but its funding and operation remain autonomous in order to prevent being swayed by political pressure.

The thinking behind the CFPB’s structure was similar. The Bureau receives its money not through congressional appropriation but from the Fed. And in its inception, the agency was given a long, independent leash purposely so that it could proceed with its work without worrying too much about political retribution.

This autonomy has long been a sticking point for conservatives. In 2013, the financial services oversight committee objected to the lack of congressional input on the agency’s budget and more recently passed two bills to give Congress control over the Bureau’s budget. The Heritage Foundation, a conservative think tank, has called for dismantling the CFPB altogether.

And if the petitioners have their way, that might just happen. They recommend a broad and severe course of action to remedy the CFPB’s structure problem: shutting down the agency and invalidating Dodd-Frank, the act that created it, until Congress comes up with a better plan. In the immediate future, the court’s opinion calls for the CFPB to be given presidential oversight, with a sitting president able to supervise, fire, and direct the head of the CFPB.

Despite the lack of explicit congressional or executive oversight, some believe that the agency is in fact subject to meaningful oversight. For rule-making, the Bureau institutes a lengthy public notice and comment period. And the Financial Stability Oversight Council, an arm of the Treasury, has the ability to veto CFPB actions.

Moira Vahey, a spokesperson for the Bureau, responded to the opinion saying, “The Bureau respectfully disagrees with the Court’s decision. The Bureau believes that Congress’s decision to make the Director removable only for cause is consistent with Supreme Court precedent and the Bureau is considering options for seeking further review of the Court’s decision. In the meantime, as the court expressly recognized, the Bureau will continue its important work.”

The court’s opinion—for now—means that the Bureau will mostly keep operating as it has, but a new level of oversight could substantially alter the agency's ability to tackle issues of consumer finance as it sees fit.