The Case for a CFPB Commission

Upon its creation, the Consumer Financial Protection Bureau was organized to operate with as little oversight as possible. The bureau is technically under the Federal Reserve, but that provides the CFPB with a budget that is a fixed percentage of the Fed's operating expenses. This effectively keeps the CFPB from having to appear before Congress for any funding oversight. But more to the point, its organizational structure has the entire bureau reporting to a single director, presumably to help the CFPB avoid the delays and compromises inherent in organizations led by a commission.

The single-director structure of the CFPB has been contested in Washington from day one. Testifying before Congress in 2011, the agency's architect, Elizabeth Warren, said, "The work facing the new bureau is very challenging; additional restrictions would undermine the consumer bureau before it even begins its work of protecting American families." She claimed at the time that some of the CFPB's tasks were seemingly insurmountable, and the agency would therefore be hindered if decisions had to go through a committee rather than a single person.

But switching to a commission structure would arguably give the work the agency is doing longer-lasting effect. Rules drafted by the agency under the guidance of a commission would be bipartisan and therefore not a target to be torn down after a change in power. The CFPB was created under a Democratic president and a Democratic-controlled Congress, and CFPB Director Richard Cordray was appointed by the same president. When Cordray's term is up, if Republicans are in power a director with sharply different views and priorities could be nominated. And if the bureau's current single-director structure stands, that new director could undo whatever progress has been made thus far.

A single-director structure is also contrary to how regulatory agencies are typically run. The Federal Trade Commission, Securities and Exchange Commission, Commodity Futures Trading Commission and Consumer Product Safety Commission all have bipartisan leadership; the latter was even the model for Warren when she devised of the CFPB.

A clear example of the effect of unchecked power for a CFPB director can be seen in the agency's action against PHH Corp. related to alleged mortgage kickbacks. An administrative law judge — in the agency's Office of Administrative Adjudication — had ruled that PHH violated provisions of the Real Estate Settlement Procedures Act, but limited those violations to a certain set of kickbacks. But Cordray determined that the administrative law judge's ruling was incorrect, resulting in a broader enforcement action. The ALJ had levied a $6.4 million fine, but the CFPB increased the penalty to $109 million.

The Office of Administrative Adjudication is only equipped to issue a recommended decision, which any party has the right to contest prior to the director either adopting the recommendation or overruling it. This leaves the ultimate adjudication of a matter solely to the director. PHH is now appealing to the United States Court of Appeals for the District of Columbia. Proponents of a commission structure for the CFPB believe the PHH matter would have been handled differently if there were more checks on the director's authority.

Republicans in Congress are not waiting for a change in administration to try to reform the CFPB's leadership structure. Rep. Randy Neugebauer, R-Texas, chairman of the House Financial Services subcommittee on financial institutions, is sponsoring a bill to have the CFPB overseen by a commission made up of five members who are appointed by the president and confirmed by the Senate. The members of the commission would serve staggered terms, which initially would be established by the president.

Even if one bought into the argument that the CFPB needed to be created as single-director organization to overcome the herculean task of centralizing the regulatory and enforcement responsibilities of all consumer financial laws, that task is now all but completed and therefore the benefits of having the bureau report to a commission far exceed any drawbacks. The delays and compromises inherent in a regulatory body may not be a bad thing. It may be exactly what the CFPB needs to create a long-lasting bureau that is reasonably handling its duties.

Craig Nazzaro is of counsel in Baker Donelson's Atlanta office and is a member of the Consumer Finance Litigation and Compliance Group. Before joining Baker Donelson, he was a vice president and assistant general counsel with JPMorgan Chase. He can be reached at cnazzaro@bakerdonelson.com.