The Consumer Finance Protection Bureau created by the Dodd-Frank law that modified federal oversight of the financial industry needs some structural reforms. But the proposal released last week by acting Director Mick Mulvaney does not provide the independence needed by an agency subject to so much outside pressure.
In a message to Congress on April 2, Mr. Mulvaney, a former Republican congressman from South Carolina who also heads the White House Office of Management and Budget, said “the bureau is far too powerful, and with precious little oversight of its activities.”
For instance, the bureau does not have to go to Congress for funding like every other executive agency of the government. It gets automatic funding from the Federal Reserve system without congressional oversight. However, that system provides crucial protection from partisan politicians who accept contributions from some business groups that might not have consumer protection near the top of their to-do lists.
Unlike most other federal regulatory agencies, such as the Securities and Exchange Commission, the bureau is led by a single director instead of a politically balanced board of commissioners. Most other executive agencies that perform as rule-making bodies have at least three commissioners who serve fixed terms independent of the national elections cycle and who must represent, among them, both major parties.
Moreover, this director is largely independent of the president and acts as a rule-maker and administrative law judge as well as an executive, giving the director judicial and legislative powers. The notion that a single director should continue to wear three hats, as a quasi-legislator and a quasi-judge as well as an executive, is wrong.
The unique design of the bureau was created by Sen. Elizabeth Warren, D-Mass., when she was an adviser to the Obama White House. Ms. Warren wanted to shelter the agency from outside political pressure, and she also wanted it to be an aggressive defender of consumers.
Mr. Mulvaney’s commitment to consumer protection rightly has been questioned since the day he assumed control of the bureau last year. He received $31,700 from payday lending companies for his 2016 congressional re-election bid, making him the ninth-highest recipient in Congress for that election cycle. Businesses targeted by the bureau in the past were glad to see him take over.
Mr. Mulvaney’s proposed reforms would require congressional approval for any bureau rules, rather than letting them take effect in the absence of congressional action.
He would also like Congress to authorize an inspector general for the bureau, which is a sound idea that would provide an important tool for oversight.
The bureau is in need of some reforms, some of which make sense, but Mr. Mulvaney must not abandon consumer protections in favor of businesses like payday lenders. That balancing act is extremely important to everyone, and he should keep in mind the bureau’s primary mission of looking out for consumers.