Who's Afraid of a Republican CFPB?

Despite being one of the most effective agencies in the entire federal government (or perhaps because of it), the Consumer Financial Protection Bureau continues to be a favorite target for anti-regulatory lawmakers. Having failed to smother the CFPB in the cradle, the new goal is to hobble it through bureaucracy. The latest attempt at crippling the CFPB is H.R. 1266, which purports to make the agency more "accountable" by changing it from being run by a single director into a multi-member commission. But are multi-member commissions like the Federal Deposit Insurance Corp., National Credit Union Administration, and the Federal Reserve more accountable in any meaningful sense than the CFPB?

The real goal of commission advocates is not to make the CFPB more accountable, but to make the agency less effective. The spurious goal of accountability is evident from the fact that the bill's sponsors have rejected suggestions to also convert the Office of the Comptroller of the Currency into a multi-member commission, even though the OCC is responsible for undertaking examinations and enforcement of CFPB regulations against national banks with less than $10 billion in assets. Apparently accountability doesn't matter for enforcement against community banks. Let's call the "accountability" meme for what it really is: an attempt to give an enormous regulatory subsidy to megabanks — those actually subject to CFPB examination and enforcement — and non-bank financial institutions.

Surprisingly, some House Democrats have been supportive of the effort to undermine the CFPB, touting a new "pragmatic" argument for transforming the CFPB's structure. This argument, made with an eye toward the 2016 elections, is that with the current single director structure, a Republican CFPB director could reverse all the progress made the agency.

This pragmatic argument does not hold water. It fundamentally misapprehends the nature of administrative agencies. Administrative agencies are bound by rule of law, and that includes, among other things, the Administrative Procedures Act. Under the Administrative Procedures Act, any rulemaking — including the repeal or modification of existing rulemakings — cannot be arbitrary or capricious or an abuse of discretion. In other words, there must be a solid evidentiary background supporting any rulemaking or repeal thereof.

In this regard, administrative agencies are substantially different than the President. The President can promulgate and repeal executive orders on a whim. Independent agencies cannot do this. A Republican CFPB Director could not willy-nilly repeal CFPB rulemakings just because s/he does not like regulation. That is arbitrary and capricious. Any repeal or modification of CFPB rulemakings would have to be supported by actual evidence or it would be struck down by the courts.  Given the impressive body of evidence that supports the CFPB's rulemakings — a body of evidence so extensive that it has resulted in industry complaints about the length of the rulemakings! — it is hard to imagine more than modest reversals of CFPB regulations except with the discovery of new evidence, in which case the rules should be modified.

It is true that a Republican CFPB director could take a laxer approach to enforcing existing CFPB regulations (as could a future Democratic director). A Republican-led CFPB could decline to pursue enforcement actions or could interpret legal provisions more generously or settle for lower amounts. But this is not an issue affected by the fact that the CFPB has a single director. A simple majority of a multi-member commission can do everything a single director can, and a commission could have a Republican majority as easily as a Democratic one. The best safeguard against future mismanagement of the CFPB by a single director is the Senate confirmation process and Congress's oversight power over the Bureau. 

There will inevitably be changes in the focus and vigor of the CFPB under future directors: elections matter — and they should. But a commission structure does not address any of the concerns about the politics of future CFPB directors and only introduces the possibility of commission-gridlock and dysfunction, which is the very point of commission proposals.

Adam J. Levitin is a professor of law at Georgetown University Law Center.