Reports that Donald Trump is considering firing Bureau of Consumer Financial Protection Director Richard Cordray and replacing him with former Representative Randy Neugebauer (R-Texas) is the latest escalation in a fight against oppressive and unaccountable regulators. While the removal of Director Cordray is certainly justified in light of the CFPB’s abuse of power and the director’s inability to address serious internal issues, it should not be the end of the discussion. The sole director structure is what enabled the CFPB’s excesses, and this mistake should be corrected. The CFPB should become more accountable, inclusive, and open to innovation, and turning it into a bipartisan commission is vital to this goal.
A commission structure, such as that governing the Securities and Exchange Commission (SEC), has several advantages over a sole directorship. First and most important, a commission provides accountability while also providing insulation from knee-jerk politics. Currently, the CFPB’s director is not accountable in any meaningful way. While we may know who is responsible for the CFPB’s actions, there is almost nothing that can be done check that person. As the Court of Appeals for the District of Columbia recently noted, this is an unconstitutional lack of accountability. While the DC Circuit’s solution of making the director removable at the president’s whim does increase accountability, it also subjects the CFPB to the whims of politics.
A better solution is found in the independent bipartisan commission, the members of which are subject to removal only for cause, but keep each other accountable. SEC Commissioner Kara Stein’s dissent from the SEC’s policy of granting waivers after enforcement actions provides a good example. Despite disagreement from the Chair, Stein’s dissent influenced the SEC’s behavior and the waivers were granted less frequently. The diversity of opinion that a commission provides helps to guard against the agency becoming captured by any industry or ideology. These internal checks stand in contrast to the experience of single director agencies like the CFPB that have frequently battled allegations that they were too cozy with one group or company at the expense of the general public.
Ideological diversity is not a commission’s only benefit. The CFPB’s sweeping jurisdiction, the rapid pace of innovation, and the importance of access to financial services all make a diversity of experiences crucial to good regulation. Having an enforcement specialist in leadership makes sense, people with market experience, technologists, economists, and entrepreneurs also should be represented at the table. This will help the agency better understand the market and provide effective and balanced regulation.
In addition to providing balanced regulation informed by a diversity of experiences, a commission will also create more durable regulation. The CFPB under Director Cordray has become politically polarized, and many view it as illegitimate. The sole directorship model threatens stability and risks causing regulation either to be tied up in court for years or whipsawed as new administrations dramatically shift direction from their predecessors. This can lead to crippling regulatory uncertainty that will harm the very people the CFPB seeks to help. A commission, which allows for the diversity of opinions found in the United States to be reflected in policy, will make more moderate and durable rules that consumers and entrepreneurs can rely on.
Finally, commission opponents claim that commissions are ineffective because they are slower to pass rules, but there is no reason to believe commissions are less effective than directorships. Commission opponents point to the fact that the SEC has not completed its Dodd-Frank rulemakings while the CFPB has. But that criticism ignores the very relevant fact that the SEC had almost three times as many rules assigned to it. In fact, in 2016 the SEC issued more final and interim final rules than the CFPB.
Regulation isn’t a commodity however. A regulator should not be measured by the volume of rulemaking, but by whether its regulation is just and effective. This requires rules broadly accepted as legitimate, and regulators to be accountable, inclusive, and balanced in their approach. While no regulator is perfect, the commission structure is better able to provide Americans with fair and effective regulation, which is what the American people deserve their consumer protection regulation to be.