Witnesses Blast CFPB, Call on House Subcommittee to Overhaul Agency

Testimony at hearing calls for fundamental changes to the bureau, a stance supported by credit union trade groups.

Unaccountable.

Rabid.

Unconstitutional.

A House subcommittee on Thursday heard a litany of accusations against the CFPB, with witnesses calling on Congress to rein in the agency, make it subject to appropriations and convert it into a commission.

As he opened the hearing on the bureau, Rep. Andy Barr, R-Ky., chairman of the House Financial Institutions and Monetary Policy Subcommittee, called it the “the most unchecked, unaccountable agency in the entire federal government.”

Subcommittee member Rep. Bill Posey, R-Fla., called the CFPB “arrogant” and “petulant.”

Political Situation

But as much as Barr, Posey and other witnesses testifying dislike the current regulatory regime at the agency, a restructuring of the bureau may run into the political realities of the Senate, where any major legislation is likely to require 60 votes to pass.

And even if such legislation were to pass both houses, President Biden, a Democrat, could still veto it. Biden was vice president when President Obama signed Dodd-Frank, which created the agency.

Democrats could therefore doom an overhaul of the CFPB.

However, the wild card in the equation could be the U.S. Supreme Court, which has accepted a case over how the agency is funded. The Fifth Circuit Court of Appeals has found that the agency’s funding scheme is unconstitutional because it is funded by the Federal Reserve and does not go through the annual appropriations process. Depending on how the Supreme Court rules, Congress could be forced to enact legislation placing the bureau under the appropriations process.

Barr has introduced legislation that would do just that.

Democratic Support for the Bureau Still Strong

But key Democrats on the House Financial Services Committee and the Senate Banking Committee made it clear they continue to support the agency, as it is constituted. And they criticized the Republican efforts towards an overhaul.

“This is not reform for the benefit of consumers, it is another page pulled from the same Republican playbook designed to destroy the CFPB and its work to empower consumers,” Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, and House Financial Services Committee ranking Democrat Rep. Maxine Waters, D-Calif., said, in a joint statement.

The lawmakers vowed to “continue to work with our colleagues to stop any anti-consumer bill and protect the CFPB so that consumers can continue to have an agency solely dedicated to protecting their hard-earned money.”

Opponents’ Testimony

Still, several witnesses testifying on Thursday blasted the agency and called for changes in its structure.

“Instead of making a concerted effort to protect the American consumer, the Bureau has ignored economics, legislation, bad actors, and its own rulemaking process and instead pursued polices that will limit consumer credit access,” Bill Hempler, president of the American Financial Services Association, which represents payday lenders, told the subcommittee.

“In my experience, there is no oversight of the Bureau’s budget—not by Congress, not by the Office of Management and Budget, and not by the Federal Reserve,” said Brian Johnson, managing director of Patomak Global Partners—a financial services regulatory consultancy—and former deputy director of the CFPB during the Trump Administration.

Another witness said that simply changing the agency’s funding is not enough.

“Congress should conduct oversight hearings to examine the delegations of legislative power to CFPB,” Jessica Thompson, an attorney with the Pacific Legal Foundation, told the subcommittee. “Where appropriate, Congress should amend statutes granting legislative power to CFPB to place explicit limitations on CFPB’s exercise of authority.”

Democratic Response

The lone Democratic witness said the agency is essential for protecting consumers.

“I was there when the Dodd-Frank Act was passed,” said Minnesota Attorney General Keith Ellison, a former member of the House Financial Services Committee. “What the Dodd-Frank Act did was put fear into every crook looking to take advantage of consumers. I’m not shocked that industry is trying to dismantle the CFPB.”

He added, “Listen, if your business model is not about bilking consumers, you have nothing to worry about from the CFPB.”

Credit Union Trade Groups in Support of Overhaul

While no credit union official testified Thursday, the two national trade groups sent subcommittee members letters outlining their proposals for a CFPB overhaul.

CUNA President/CEO Jim Nussle said the agency should use its power to exempt credit unions and other small financial institutions.

“If the Bureau spent fewer resources on regulating and supervising credit unions and other small lenders subject to federal prudential regulation, then it will have more time available to focus on the businesses actively engaged in objectionable practices that exploit consumers,” he wrote, in a letter to the panel.

NAFCU Senior Vice President of Government Affairs Greg Mesack agreed.

“NAFCU encourages you to question why the CFPB has not utilized this dormant authority and to encourage the CFPB to begin relying on its exemption authority under section 1022 of the Dodd-Frank Act in its current and future rulemaking efforts to consider the unique structure and characteristics of the credit union industry,” he wrote.

The trade groups also endorsed legislation that would transform the agency into a commission.

What Comes Next?

Perhaps Johnson, the former agency official, summed up the political football of the CFPB best.

“In my many years of closely following the Bureau, I have found there is simply no middle-ground opinion about this agency,” he said. “It remains politically polarizing.”