Increasing the Effectiveness of the Bureau of Consumer Financial Protection in Protecting Consumers

Chairman Capito, Ranking Member Meeks, and members of the committee, thank you for the opportunity to testify today about needed reforms of the Bureau of Consumer Financial Protection. The Bureau’s self-described mission is “to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” ¹ The Bureau’s structural flaws threaten to undermine that mission. Today, I will discuss three of those flaws—the lack of accountability, the opacity of the Bureau’s decision-making processes, and the flaws in the Bureau’s organic statute—and potential avenues for addressing them in a manner that makes the Bureau more effective at protecting consumers. These incremental reforms are not a substitute for more fundamental reforms, such as placing the Bureau in the congressional appropriations process and replacing the director with a bipartisan commission.

The Bureau is rooted in a commendable desire to ensure that the financial system is meeting the needs of consumers. In a recent speech, Director Richard Cordray explained that the Bureau “seek[s] some fairly basic things,” including “to hold financial companies accountable for being up front about the costs and risks of their products” and “to see that throughout the financial marketplace consumers are treated fairly and with the dignity and respect they deserve.” ² An agency that is not accountable and “up front” about the costs and risks of its regulatory actions and one that does not treat the entities it regulates fairly is not well positioned to achieve these objectives. Dodd-Frank created the Bureau without the structural features that are typically in place to help agencies function effectively.³ While I cannot comment on the specific legislative text of the proposals before the Subcommittee today, the incremental reforms that I discuss below, by addressing these structural weaknesses, should serve to improve the Bureau’s ability to serve consumers.

LACK OF ACCOUNTABILITY

The Bureau’s creators designed it to be independent of the President and Congress. Rather than being under the guidance of a politically balanced commission, the Bureau is run by a single director with a five-year term who may only be removed for cause—not for policy reasons. The President’s authority over the Bureau’s director is, therefore, quite limited, as is Congress’s. The Bureau’s budget comes not from Congress but from the Federal Reserve System’s earnings in an amount—subject to a cap—determined by the Bureau’s director. The Bureau also operates independently from the Federal Reserve, within which it is housed, and from the other regulators charged with overseeing banks’ safety and soundness.⁴ As a consequence, the Bureau’s ability to fulfill its mission is inextricably tied to the whims, will, and weaknesses of the director who heads it.

Requiring the Bureau to have a dedicated inspector general would enhance the agency’s limited accountability. An inspector general can play an important role in overseeing the operations of an agency and investigating potential misconduct by agency officials. The Bipartisan Policy Center recently recommended that “[a]n independent Bureau should have a correspondingly independent inspector general with full investigative and reporting powers.” ⁵ Currently, the inspector general for the Board of Governors of the Federal Reserve System, who is appointed by the Federal Reserve Board chairman, is also responsible for overseeing the Bureau.⁶ This sharing arrangement means that neither the Federal Reserve Board nor the Bureau is properly overseen. The inspector general’s dual mission is particularly unworkable because Dodd-Frank substantially broadened the Board’s regulatory authority.⁷ The shared inspector general has produced valuable reports regarding the Bureau.8 A presidentially appointed, Senate confirmed, dedicated inspector general would be able to provide more rigorous oversight.

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