Will a CFPB Commission Ever Happen?

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At the end of 2015, there were at least 48 bills pending before Congress that sought to change, defund, or otherwise weaken the Consumer Financial Protection Bureau. None of them passed.

Yet some critics of the bureau think there is a renewed chance to change the bureau's structure. They point to the presidential election and recent setbacks to CFPB Director Richard Cordray, including a watchdog's report on employee discrimination and a pending legal challenge to its constitutionality, as laying the groundwork for a change.

"If Republicans sweep the election, it's a real possibility," said Justin Schardin, acting director of the Bipartisan Policy Center's Financial Regulatory Reform Initiative. "If Democrats win the White House, it isn't."

Schardin noted that the most recent bill, by House Financial Services Committee Chairman Jeb Hensarling, would change the CFPB's name to the "Consumer Financial Opportunity Commission" and give it a dual mandate: consumer protection and competitive markets. "It would change the nature of the agency," Schardin said.

Since its inception, the CFPB has faced enormous criticism from Republicans who have sought to replace the current single director with a bipartisan five-member commission and subject the agency to the appropriations process.

Some CFPB insiders even see a commission as a positive for Democrats. Having a single director made sense early on, when the CFPB first started. But pivoting to a commission could help prevent a Republican-appointed director from undoing its previous work.

"It might be a good thing because it would put a force field around the bureau's rules to date," said Richard Horn, a former senior counsel and special adviser at the CFPB who now runs his own law firm. "You would think that Democrats would put a commission structure in place, to make it harder to change it later, because a Republican-appointed director could gut what they've done so far. A commission structure makes it harder to do that."

The CFPB, which is limited in what it can say about Congress, declined to comment.

But Dennis Kelleher, president and CEO of the Wall Street reform group Better Markets, said the push for structural changes is a cloak to dismantle the agency entirely. Critics do not suggest eliminating the CFPB because doing so could spark a backlash from consumers, he said.

"When an agency returns $10 billion to more than 17 million American's who were ripped off, it's an agency you cannot go against," Kelleher said. "Nobody is going to stand up and say they are going to kill a consumer protection agency that is as effective as this one."

It's why most bills have tried to chip away at the CFPB rather than eliminate it.

"When you get into the benefits and drawbacks, into whether you're for a consumer or a lender, you can't really make that argument," said Craig Nazzaro, of counsel at the law firm Baker Donelson and a former vice president and assistant general counsel at JPMorgan Chase.

Nazzaro acknowledged that the chances for change right now are unlikely, but the longer-tem situation could be different.

Hensarling's bill "is a long shot," he said. "But just the fact that they're introducing [bills] means they're not going to give up. As we get further away from the mortgage meltdown, [Republicans] can hack away at how independent the agency is."

That is particularly true if the presumptive GOP presidential nominee Donald Trump wins the White House and Republicans are able to bolster their presence in the Senate. While Trump has not said anything directly about the CFPB, many GOP lawmakers are hopeful he will embrace their plan.

Yet for their part, Democrats are not anticipating defeat. The poll numbers of the presumptive nominee Hillary Clinton versus Trump are mostly positive, particularly in battleground states Trump needs to win. Moreover, Democrats have a shot at retaking the Senate, with many races currently tilting in their direction.

As a result, Democrats have not been inclined to compromise on the CFPB, particularly Sen. Elizabeth Warren, D-Mass., who founded the agency and holds significant sway with progressives.

"The Democrats probably feel right now that they don't have any reason to give anything up," Horn said.

Some critics hope Democrats may change their minds because of a Government Accountability Office report that found 25% of African-Americans, Asians and female employees who responded to a survey said they experienced discrimination at the agency. Yet so far the political fallout from that report has been predictable, with Republicans criticizing Cordray while Democrats defend him.

Hensarling's bill would also mark a major change to the U.S. regulatory regime from the current independent agency model to a congressionally accountable structure. The bill would subject all federal financial regulators, including the Federal Reserve Board's banking supervision and the Office of the Comptroller of the Currency, to the appropriations process. That might be hard for Democratic lawmakers to swallow — and regulators will also push back hard.

"The independent funding model is strong and preferable to appropriations," Schardin said. "Regulators need to make tough decisions in a crisis and they need to be insulated from politics to some degree."

If Congress is unlikely to act in the short term, bankers eager to see changes to the CFPB have another hope. A federal appeals court is due soon to give a ruling on a case involving the CFPB and the New Jersey mortgage lender PHH Corp.

PHH has challenged the constitutionality of the CFPB's structure, arguing that a single director violates the Constitution's separation-of-powers doctrine by limiting the president's "removal authority." Under the statute in the Dodd-Frank Act that created the agency, the CFPB director can only be removed "for cause," setting up a possible constitutional conflict.

"If the [D.C. Circuit court] comes back with a strongly worded opinion in the PHH case, you'd have the judicial arm saying the structure is either not a good idea and maybe not constitutional," Nazzaro said.

One thing is clear: Regardless of the outcome in Congress or the courts, the battle will continue.

"That pushback has been constant for seven years and it not going to die out now," Nazzaro said. "In fact if it gains steam, it's only going to increase."

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