Fight Over CFPB Leadership Highlights Faults in Agency’s Structure

When Senator Elizabeth Warren (D- MA), then a law professor at Harvard, laid the original groundwork in 2007 for what would later become the Consumer Financial Protection Bureau (CFPB), she famously voiced a concern that toaster ovens were more highly regulated than home loans. Her fears came to pass barely a year later when the mortgage crisis pushed our nation into the worst recession since the Great Depression of the 1930s.

The U.S. Department of the Treasury took her recommendations and proposed a consumer finance agency with the authority to stop unfair, deceptive, and abusive acts and practices while operating independently from the Executive Branch. To oversee this powerful new financial watchdog, the Treasury recommended a board and director similar to the Securities and Exchange Commission.

Congress would incorporate many of the recommendations first put forth by Warren and the Treasury in creating the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank instituted considerable banking restrictions and developed a new agency to oversee non-bank financial operations in the CFPB. Dodd-Frank deviated from the Treasury report in one important way- the CFPB would be managed by a single director appointed by the President, but only fireable “for cause.”

The thought behind this substantial change was to insulate the CFPB and its leadership from the corrupted influence of politicians and the powerful banking lobby. Going even further, Dodd-Frank shielded the Bureau from Congressional control by exempting it from appropriations and providing the agency a share of the Federal Reserve’s coffers. The result was an incredibly independent federal agency whose director is virtually answerable to no one, although the agency’s structure is currently being challenged as unconstitutional in federal court.

The first person chosen to lead the CFPB was former Ohio Attorney General Richard Cordray. It took an questionable recess appointment and more than a year before Cordray was officially confirmed to the position. His partisan nature and lack of accountability often proved harmful to the industry, especially enforcement practices that threatened the sovereignty of tribal nations.

The announcement that Cordray was leaving the Bureau to run for governor of Ohio has only created more regulatory uncertainty as our two main political powers jockey for position at the agency. It began just after Thanksgiving when Cordray and President Trump both appointed acting directors on the same day. Although a federal court sided with the President and installed Mick Mulvaney as acting director of the CFPB, Cordray’s pick, Leandra English, has vowed to take her case as far as she can.

Both Mulvaney and English have been interacting with and instructing staff at the agency. At the same time, a group of CFPB staffers have established their own rogue resistance movement called “Dumbledore’s Army,” sending encrypted messages about subverting directives from the new leadership team.

The effect of these rival factions within the agency is regulatory confusion for industry participants. How can a business trust communications from the CFPB right now?

The Congressional Research Service (CRS) reported earlier this year on the characteristics, strengths, and weaknesses of independent federal agencies. When discussing single director v. board leadership structures, the CRS noted boards allowed for a diversity of views and were less likely to be tainted by the partisan reflections of the President.

The CRS recognizes that politics cannot be entirely removed from the agency leadership, but more balanced boards lead to consensus-building and ultimately more regulatory consistency. While the deficiencies in the CFPB may or may not be improved with a change in managerial structure, there is no doubt that industry participants do not benefit from the current uncertainty clouding the agency’s leadership.