Consumer protection would be strengthened by a five-member board
Good governance is the norm, and it is how the Consumer Financial Protection Bureau ought to be run.
Speculation about who will be confirmed as the first Director and what qualifications he or she should have are separate issues. The real issue is how the Bureau should be structured for the next ten, twenty, or one hundred years.
Most federal regulatory agencies are governed by a commission or board: the Securities and Exchange Commission, the Federal Communications Commission, the Consumer Product Safety Commission, the Federal Trade Commission, the Federal Deposit Insurance Corporation, and the Federal Reserve. Many of these commissions have bipartisan requirements. Most companies, including the member companies of The Financial Services Roundtable, are governed by a Board of Directors.
Some point to the Office of the Comptroller of the Currency (OCC) as an outlier to the commission model. The OCC was created in1863; if we were recreating it, maybe we’d structure it differently. But the OCC has 150 years of rules and precedent and is part of the larger Treasury structure, whereas the Bureau has no legal precedent and little accountability.
The original CFPB was a commission. Governing the Bureau by a commission is not a new idea. The Bureau’s earliest advocates envisioned it as such. Elizabeth Warren called for the creation of the Financial Product Safety Commission in her 2008 Harvard Magazine article, “Making Credit Safer.” The original House bill, authored by Representative Barney Frank in July 2009, provided for the Bureau to be run by a five-member board. In December 2009, the House of Representatives passed the “Wall Street Reform and Consumer Protection Act,” which included a provision for a five-member commission. These earlier versions aren’t the Ten Commandments, but they do indicate a broad recognition of the need for a commission, not a sole Director.
The Bureau’s statutory obligations are to make markets for consumer financial products and services “fair,” “transparent,” and “competitive.” Applying these same obligations to the governance of the Bureau would increase its effectiveness and allow the Bureau to better protect American consumers. In short, the Bureau cannot fulfill its obligations of fairness, transparency, and competition for the American consumer without checks and balances.
A commission would make the Bureau fairer. The current structure of the Bureau has little to no room for minority opinions. This makes the Bureau partisan by default and vulnerable to changes in administrations. If directors come and go and rules are rescinded and renewed based on the prevailing party, uniform regulation is negated. With a commission, there would be bipartisan representation and long-term commitment to the decisions made by the Bureau.
A commission would make the Bureau more transparent. The Bureau exercised transparency with the proposed mortgage forms that were released for industry and consumer review. This type of transparency should be institutionalized in rulemaking. With a commission, arguments would be fully vetted, unintended consequences would be discussed, and there would be a public vote among the commission’s members for each new rule.
A commission would make the Bureau more competitive. The Director of the Bureau has unchallenged authority over the products and services we use everyday. In the current sole Director model, the Secretary of the Treasury, Chairman of the Federal Reserve, Comptroller of the Currency, Chairman of the Securities and Exchange Commission, and Chairperson of the Federal Deposit Insurance Corporation could all oppose a proposed rule, and the Director of the Bureau could veto their concerns, (since a two-thirds vote of FSOC is required to overturn a rule). The Director’s authority must be checked. It should be checked first by the other members of the commission, and if necessary, by a simple majority of FSOC.
There are historical and theoretical reasons for good governance. But there is also a practical reason. Forty-four Senators have signed onto a letter saying they will not confirm any Director of the Bureau until a commission is in place. This means consumers could be 18 months or more without a Director at the helm.
It is essential that the actions of the Bureau are consistent, long-lasting, and well-developed. For this to occur, the leadership of the Bureau cannot blow with the winds of partisan sentiment or ignore the impact of its decisions on the safety and soundness of the industry.
The goal is to strengthen consumer protection – and that means a five-member board.