Why the Elections Matter for the CFPB

WASHINGTON — Republicans and the banking industry face long odds in making structural changes to the Consumer Financial Protection Bureau this year, but the ultimate outcome of the battle is still far from certain.

GOP lawmakers have fought to replace the single director model at the agency with a five-person board since the Dodd-Frank Act was passed five years ago. But President Obama and Democrats have been largely united in opposing major changes to the crisis-era law, particularly when it comes to the consumer agency.

So far, just a handful of congressional Democrats have signaled an interest in changing the agency's structure, but that could still shift starting as soon as next year if it looks like the GOP may win the White House. Richard Cordray's five-year term as CFPB director expires in 2018, which gives the next president carte blanche to select someone who could drastically shift the agency's approach to policing the banking industry.

"If a year from now, the polls suggest a Republican victory, my guess is you're going to start to see some shifts in the numbers," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.

The House Financial Services Committee last week approved the latest in a series of bills aimed at changing the agency's leadership to a five-person commission. The vote was largely split down party lines, though two Democratic cosponsors, Reps. Kyrsten Sinema of Arizona and David Scott of Georgia, supported the measure and several others suggested they were open to the general idea.

Both sides of the debate hailed the vote as a victory, with progressives arguing that Democratic support was limited, but reformers saying it showed cracks in the previously ironclad defense of the CFPB.

As a result, it will be critical to watch where moderate Democrats stand on the issue going forward.

"Some of the Democratic moderates who have voiced this concern or are openly supporting it have historically had these concerns — what's new was how unified they had been for as long as they'd been," said Edward Mills, a policy analyst at FBR Capital Markets.

For now, the deck is largely stacked against structural reform to the agency, given that Democrats hold the White House and have a large enough minority in the Senate to block a vote on the issue.

But that didn't stop staunch CFPB defenders from pushing back on the move — the Obama administration and Sen. Elizabeth Warren, D-Mass., reportedly made calls to House Democrats urging them not to support the plan.

"We were told by several policymakers that they received a great deal of pressure not to support the commission bill," said Camden Fine, president and chief executive of the Independent Community Bankers of America, which supports the legislation.

Warren, who founded the agency, will remain a force to be reckoned with on the issue, especially given Obama's lame-duck status.

"Warren will be there longer and she tends to use the pulpit more aggressively and effectively than the White House does," Gardner said.

Progressives' fear remains that a board would drastically slow down the regulatory process; they also say that a GOP-controlled commission would be no less harmful to consumer concerns than a sole Republican director.

And for many House Democrats, particularly those sympathetic to the push for a commission structure, there's more to lose than to be gained by sticking their necks out during this point in the process, where there's little likelihood that a bill will be passed into law.

"As much as they might want to do something, it's not worth raising the ire of senior members of the Democratic Party," said Brandon Barford, a partner at Beacon Policy Advisors.

While it's conceivable that Republicans could bring the issue up as part of a must-pass spending bill at the end of the year, observers largely predicted that the fight will instead be punted until after the elections. Given the fallout from the swaps "pushout" provision in last year's spending package, it's possible financial issues will receive less focus overall in the yearend fracas.

Still, analysts noted that the political calculus may change.

"If you're a Democrat, there's really no reason to shift right now — the outcome of the 2016 elections is quite unclear," Gardner said. "You can always change course and make a deal later."

That gamble could very well pay off if a Democrat takes the White House. That ensures that Cordray or another consumer-friendly director will head the agency for at least another five years. Why broker a deal now when so much is up in the air?

"The time at which that happens is when there's Democratic fear that a Republican president or Congress would appoint someone that they would not want in charge of the bureau," Mills said.

Part of the issue comes back to deeper questions about protecting Dodd-Frank for the long term. The banking industry is growing increasingly frustrated with the lack of changes to the law — even small tweaks, let alone major reforms like a change to CFPB structure.

"It shouldn't be this sacrosanct, sacred cow that no one is allowed to touch," Fine said. "There are many parts of Dodd-Frank that are working as intended and that have made the banking industry a better place. But there are several areas that need to be looked at again — some of those areas have had unintended consequences."

Those looking to establish a commission argue that a bipartisan leadership structure could ultimately make the agency less of a political target — and would also reduce continuity concerns about the bureau's focus during changes of administration.

One key factor on industry's side is time. The longer the period since Dodd-Frank's passage, the fewer remaining members of Congress there will be who were involved in the knock-down fight over financial reform in the lead-up to the law's passage.

"That's the No. 1 dividing line — were you in office during the crisis and did you fight to get anything done afterwards tooth and nail?" Barford said. "If that's the case, then you're less likely to want to amend Dodd-Frank. If you're newer, you're not vested in it nearly as much."