The Customer

Phantom Rogue

How can the CFPB be raging out of control when it hasn’t done anything yet?

Elizabeth Warren

On March 16 the House Financial Institutions and Consumer Credit Subcommittee held an oversight hearing about the Consumer Financial Protection Bureau. Committee Chair Shelley Moore Capito, R.-W.Va., called it “one of the most important hearings this subcommittee will hold this Congress.” Its urgency was underscored by a Wall Street Journal editorial that appeared that same morning calling the CFPB “a bureaucratic rogue.” Members of Congress complained that the CFPB was unaccountable to the congressional appropriations process; too heavily influenced by politics; indifferent to the “safety and soundness” (i.e., solvency) of financial institutions; and an all-around bureaucratic nuisance. Sitting in the press section, I began to feel guilty that I’d never before written about this regulatory monster

Then I remembered: The CFPB hasn’t done anything yet.

I don’t mean that as a criticism of the CFPB, which was created by last year’s Dodd-Frank financial reform law. The CFPB doesn’t open for business until July 21. That isn’t some self-protective gimmick, like the way the producers of Spider Man: Turn Off The Dark keep postponing opening night even as the show continues to play before live audiences. The CFPB isn’t allowed to play before live audiences—which is to say, start regulating—until July 21, the opening night assigned it by Treasury Secretary Tim Geithner (following guidelines laid down in Dodd-Frank). That’s the “transfer date” when regulatory authority currently held by seven existing agencies is turned over to the CFPB. By then Elizabeth Warren, the consumer advocate much-loathed by the GOP who is currently setting up the CFPB in her capacity as special adviser to Geithner (she is also an assistant to the president), may have gone the way of Julie Taymor. (Here’s Warren’s opening statement.)

I also don’t mean to suggest that Warren hasn’t been working very hard. She’s been running all over the country giving speeches and meeting with bankers and consumer groups. She’s been hiring people for the agency. She’s been “laying the groundwork for the Bureau to write new rules required by the Dodd-Frank Act,” according to a Treasury document. She’s created an agency Web site.

Curiously, though, none of the House subcommittee Republicans wanted to ask her about any of that. They just wanted to yammer about how terrible the CFPB was, by which they really meant how terrible the Dodd-Frank legislation creating the CFPB was. Warren, much to her credit, refrained from uttering what struck me as the logical response: “Dude, I didn’t write Dodd-Frank.” (Though I suppose the Republicans could have answered, in turn, that its provision creating the CFPB was originally her idea. Rep. Barney Frank, D.-Mass., wasn’t present to hear criticism of his handiwork because, though former chairman and current ranking member of the House Financial Services Committee, he does not sit on this subcommittee.)

One substantive action Warren has taken in her capacity as non-director of the CFPB (the Republicans were correct to point out that President Obama would have made her director if he thought she could win Senate confirmation) was to recommend how to settle with the banks over foreclosuregate. Warren did this at Geithner’s request. Reportedly a $20 billion figure is in play. The subcommittee Republicans wanted to know what Warren had recommended. Was the $20 billion her idea? Was she trying to sell that to the banks?  “We are not negotiating with anyone,” she answered. “This is a law enforcement matter that is headed by the Department of Justice.” Oh, come on, said Rep. Scott Garrett, R.-N.J. Aren’t we talking about “mere paperwork violations”? Warren: “It would not be appropriate for any member of the government, me or anyone else, to comment on what’s involved in those negotiations. It would just not be right.”

The rest of the hearing consisted mainly of House subcommittee Republicans lecturing Warren about what a vicious marauding beast Congress created in the CFPB (with the occasional Democrat chiming in to say he or she hoped Warren gets installed as CFPB director).

The biggest Republican complaint was that the CFPB doesn’t receive appropriations directly from Congress. Instead, it gets its money via “authorized transfers” from the Fed, its parent agency. That does seem a little strange. But Warren explained that four other banking agencies (the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the soon-to-be-defunct Office of Thrift Supervision, and the Fed itself) are similarly funded outside the congressional appropriations process, and that this is done to preserve their independence from, well, banks.

Moreover, Warren said, the CFPB is the only federal agency that can be overruled by other agencies. That was a slight exaggeration (other agencies that are part of larger cabinet departments can sometimes be overridden by cabinet chiefs), but the CFPB will be uniquely hamstrung. The Dodd-Frank bill created a Financial Stability Oversight Council whose members represent nine agencies (Treasury, the Fed, the CFPB, the Comptroller of the Currency, the Securities and Exchange Commission, the FDIC, the Commodity Futures Trading Commission, the Federal Housing Finance Agency, and the National Credit Union Administration). The FSOC will be able to overrule any CFPB regulation it doesn’t like. Most or all of its other member agencies are, by law, required to help preserve the banks’ “safety and soundness” (again: solvency), even if the CFPB itself is not. Yes, answered Rep. Edward Royce, R.-Calif. (who last year tried and failed to insert “safety and soundness” language directly into Dodd-Frank), but there’s a “very high threshold” to override. (It takes a two-thirds majority vote.) Warren answered that the FSOC veto is “something that exists literally nowhere else in government.”

These colloquies, though pointless, were at least about real issues. Others … not so much.

Rep. Patrick McHenry, R.-N.C., pressed Warren about the fact that she was a political appointee. “Do you understand why it is controversial?” he asked. “Karl Rove had a similar position in the White House.” (McHenry is a Rove protégé.) Uh, no he didn’t.

Rep. Sean Duffy, R.-Wisc., said he was troubled that the CFPB wasn’t set up like the Federal Trade Commission or the Securities and Exchange Commission, whose power is dispersed among multiple commissioners of both political parties. Yes, that’s one model, Warren answered, but the Office of Thrift Supervision and other banking regulators “have a single director. I think when Congress made the decision, I think it was the right decision.”

Rep. Blaine Luetkemeyer, R.-Mo., tried to get Warren to name an upper limit on the possible cost of any CFPB regulation to business, and when she wouldn’t name a dollar amount he said that showed the agency was unconcerned with cost-benefit analysis. Warren answered that the agency is statutorily bound to make cost-benefit analyses of its regulations’ potential impact, and resisted any urge to point out that Luetkemeyer’s idea of cost-benefit analysis was all cost and no benefit.

Rep. Steve Pearce, R.-N.M., sounding very much like somebody’s crazy uncle, asked how the CFPB could be “the angel, be the champion of the consumer,” if it didn’t try to do anything about inflation? Warren, looking slightly dumbfounded, answered that it wasn’t the CFPB’s job to make monetary policy.

I left the hearing wishing President Obama could find some way to appoint Warren director of the CFPB. I think the subcommittee Republicans secretly wish the same. They deserve a chance to interrogate her about actions she’s actually taken. That opportunity was denied them here.