The U.S. Midterm Elections have been over for less than a week, and already Democrats are circling the wagons to protect what will certainly be a top priority on the Republicans' list of changes to make – the Consumer Financial Protection Bureau (CFPB).
Republicans have hinted, some not-so-subtly, that the Bureau is in need of reform, and they intend to do just that now that they have a majority in both the House and the Senate. It is widely speculated that financial regulation overhaul, which includes the CFPB and the Dodd-Frank Wall Street Reform and Consumer Protection Act, along with Obamacare will be two issues Senate Majority Leader Mitch McConnell (R-Kentucky) and Senate Banking Committee Chair Richard Shelby (R-Alabama) will go after first when they take their new seats in January.
The CFPB was created in 2011 from the controversial Dodd-Frank Act, which was passed by the Obama administration in 2010. The Bureau's stated 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." In carrying out this mission, the CFPB has penalized financial institutions to the tune of millions and millions of dollars, including levying a $37.5 million fine to Michigan-based bank Flagstar in September and a $2 billion penalty against mortgage servicer Ocwen in late 2013.
Penalties like these and CFPB Director Richard Cordray's declaration that the Bureau will "vigorously enforce" new mortgage servicing rules with have caused many Republicans to believe the Bureau embodies overreaching bureaucracy – too powerful because it is not accountable to Congress.
In an editorial in the Wall Street Journal in July, Senator Richard Shelby (R-Alabama) lamented what he believed to be a lack of accountability on the part of the CFPB, openly questioning why a single director heads the bureau when the Federal Reserve, the FDIC, and the Securities and Exchange Commission are all led by boards. Congressman Jeb Hensarling (R-Texas), Chair of the House Financial Services Committee, expressed his disdain for the CFPB in an interview with the Wall Street Journal shortly before the recent election. Hensarling called the CFPB an "unaccountable federal leviathan" in the interview and wondered why the Bureau is not accountable to Congress or any government agency despite being funded by the Federal Reserve. Not only that, Hensarling said, only the president can remove the Bureau's director and even the U.S. Supreme Court has to defer to the CFPB's decisions.
Republicans know that making significant changes to the CFPB will be a difficult measure. The politics of restructuring an authority with the words "consumer" and "protection" in the title are tough if not handled correctly. Just yesterday Barney Frank, one of the chief architects of the Dodd-Frank Act, told MSNBC's Chris Matthews that he sincerely hoped that the Republicans would "come after" the CFPB because doing so would certainly mean a backlash from the American people. The campaign commercials with big bank CEOs lighting their cigars with $100 bills write themselves.
The reforms proposed now are aimed at curtailing the Bureau's power by replacing Cordray, the Bureau's director, with a five-member board and giving Congress control of the Bureau's funding. The key for McConnell, Shelby, and Hensarling, and the rest of the Republican caucus will be to make the case that the administration has over corrected and gain bipartisan support.