Democrats May Have Upper Hand in Fight to Preserve CFPB

By Gregory Roberts

The top-ranking House Republican on financial services issues has laid out two aggressive lines of attack on the Consumer Financial Protection Bureau, but both could run into daunting opposition from Democrats – and big banks.

“It would be an uphill battle for Republicans to eliminate the CFPB or to make substantial changes to its mission,” George Washington University political science professor Sarah Binder told Bloomberg BNA. “It’s just too easy for Democrats to frame the debate as a Republican ‘war on consumers,’” she said.

Meanwhile, the nation’s biggest banks, which have spent tens of billions of dollars to comply with Dodd-Frank and CFPB oversight, are reluctant to start over, Richard Hunt, president of the Consumer Bankers Association, told Bloomberg BNA.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas), published an op-ed in the Wall St. Journal Feb. 9 that called for effectively shuttering the CFPB by cutting its budget to zero.

That same day, a Feb. 6 memo that Hensarling wrote to other committee Republicans came to light, outlining his ideas for overhauling the 2010 Dodd-Frank Act that established the CFPB. In the memo, Hensarling proposes to curtail the authority of the bureau substantially and to reorganize its administrative structure, but not to eliminate it.

Popular Cause

Congressional Democrats were quick to criticize the memo. Sherrod Brown (D-Ohio), the ranking member of the Senate Banking Committee, said in a statement that the proposal “would transform the bureau from an effective watchdog into a toy poodle.” Brown cited a June 2016 poll showing 71 percent support for the CPFB.

Faced with a solid Republican phalanx in Congress and the White House, Democrats in Congress may see a contest over the CFPB as a rare opportunity.

“The vast majority of Americans wouldn’t know Dodd-Frank from a ballpark frank,” Charlie Cook, editor of the national Cook Political Report, told Bloomberg BNA. said.

But, he said, “People generally are in favor of the concept of consumer protection.” That makes voting against an agency with those words in its name a dicey prospect for a congressional Republican vulnerable in the 2018 elections, Cook said.

“If the Democrats didn’t pick this fight, you would wonder what they would want to fight over,” he said.

Opening Gambit?

The op-ed and memo may be the opening salvoes in what promises to be a long and bitter struggle over Dodd-Frank and the bureau — a contest that may produce a resolution some distance from where Hensarling stands.

“It’s early,” Isaac Boltansky, an analyst at Compass Point Research & Trading, told Bloomberg BNA. “This is the beginning gambit.”

Republicans in Congress have trained their sights on the bureau almost since its creation under Dodd-Frank, which was the Democratic-led response to the 2007-08 financial crisis and the abuses that contributed to it. A particular Republican target has been CFPB Director Richard Cordray, who was appointed by Democratic President Barack Obama to a five-year term expiring in 2018.

Republicans say Cordray is an autocrat leading a runaway bureaucracy that stifles businesses, kills jobs and throttles consumers’ access to credit through regulatory overreach. Democratic defenders of the bureau say it’s a necessary check on big banks, mortgage and student lenders and other financial service providers. They point to the bureau’s actions in returning $12 billion to 27 million consumers victimized by industry bad actors.

Round Two

The Feb. 6 memo discusses Hensarling’s plans for a revised version of the Dodd-Frank overhaul he introduced in the 114th Congress: the 2016 Financial Choice Act, which passed his committee but died with the end of that Congress in December. Choice 2.0 would go further in making incursions on the CFPB. In particular, it would subject the director — who now can be removed only for cause — to dismissal at the whim of the president, where the 2016 Choice Act would have replaced the director with a five-member, bipartisan commission.

Both versions would meet a key Republican demand: Bringing the bureau’s budget under the regular congressional appropriations process. Dodd-Frank provides for the bureau to get its money via the Federal Reserve Board, which operates outside the normal budget channels.

Hensarling may well succeed in pushing Choice 2.0 through the House, where Republicans hold a sizable majority and the support of a bare majority is sufficient to approve legislation. But the Senate, where Republicans hold 52 of the 100 seats, plays by different rules, which require 60 votes for a bill to pass.

“I have trouble seeing eight moderate Democrats coming over the fence and supporting the CFPB changes as constructed by Chair Hensarling,” Boltansky said.

“I think that the lowest common denominator, where you can get eight moderate Democrats, is [in support of] a commission structure,” he said.

Middle Ground

A possible middle ground approach has already been introduced in the Senate by Deb Fischer (R-Neb.). Fischer’s bill, which she had sponsored in the last two congresses, would create a five-member board but allow the CFPB to retain some measure of independence by staying out of the congressional appropriations process.

The idea of a bipartisan commission — the set-up in place at several other agencies — has lost favor with Democrats because of what they view as abuse of the system by Senate Republicans during the Obama administration. Under Obama, Democrats say, Republicans exploited their control of the Senate to block virtually all of Obama’s commission nominees, effectively hamstringing the agencies involved. They don’t want the CFPB to suffer a similar fate.

The federal courts, though, could take that issue out of Congress’ hands, at least in the short term. Dodd-Frank says the CFPB director can be removed only for cause, but a federal appeals court ruled in October that the CFPB is “unconstitutionally structured” because it is overseen by a single director who can be removed only for cause.

The court sought to fix that by striking the for-cause clause, meaning the director would serve at the will of the president; that order has been stayed pending a decision on a rehearing of the case, but if it is ultimately affirmed, it could complicate the debate.

The Extreme Option

In his Wall St. Journal op-ed, Hensarling spelled out a tactic for rendering the CFPB impotent that would not require 60 Senate votes, but just 51: Reducing its appropriations to nothing through a procedure known as reconciliation. That procedure can be applied only to actions that affect the federal budget, within certain limitations.

Even if that tactic could be applied, Botansky said, it’s unlikely 51 Republicans would support complete starvation of the bureau.

“The CFPB is the cop on the beat for financial services issues, much of which are very accessible to the average American,” he said. “There are things that have political staying power when described to the American electorate. So zeroing them out is not politically palatable.”

CBA President Hunt said eliminating the CFPB entirely isn’t palatable to banks, either.

“We in the banking industry believe you must have certainty and stability,” Hunt said. That could come from a reformed CFPB operating under a commission – not a director who would be switched out with every change in White House control – and with a reasonable budget subject to congressional review, he said.

Another major industry group, the Financial Services Roundtable, also endorses a commission structure and congressional appropriations for the CFPB. The organization’s outline of its 2017 priorities on its web site says that the agency “could better advance its mission by embracing more accountability and transparency.”

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To contact the editor responsible for this story: Michael Ferullo at

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