Why Congress' assault on Consumer Bureau may succeed

Last Updated Jun 9, 2017 12:04 PM EDT

Is the Consumer Financial Protection Bureau toast? It sure faces a lot of obstacles that could block its power. The House is about to take up the CFPB question as part of its bid to roll back the Dodd-Frank law, and its GOP-led revamp legislation is likely to pass.

Dodd-Frank, which imposed stricter rules on banks in the wake of the financial crisis, is highly unpopular in Republican circles. True, passing a significant weakening of the 2010 law -- it also set up the CFPB -- is a lot easier in the House, where the Republicans have a larger majority, than in the Senate. In the Senate, they have a narrower (52-48) advantage, not enough to overcome a Democratic filibuster, which needs 60 votes. 

Still, Republican lawmakers and President Donald Trump, also a vocal critic of the consumer agency, have several other chances to hobble its far-reaching powers. The GOP line is that the CFPB, created in 2012, has stifled economic activity by burdening lenders with regulations and lawsuits. They charge that its director, Richard Cordray, has unconstitutional authority: He can be fired only by the president and only for cause, such as malfeasance or negligence.

Under the bill going to the House floor, the CFPB would be prevented from its freewheeling ability to go after what it sees as violations, and can only enforce what's on the books. Its director would serve at the pleasure of the president, and its budget -- now funded by the Federal Reserve -- would be shifted to Congress, thus subjecting it more to political forces.  

Democrats counter that the CFPB is a vital Wall Street watchdog that has aided ordinary Americans following the worst economic downturn since the Great Depression. They argue that the bureau has returned some $12 billion to consumers who banks and other financial firms have harmed. 

The agency is the creation of the staunchly liberal Sen. Elizabeth Warren, D-Massachusetts, who first proposed it when she was a Harvard law professor in 2007. She urged a union and consumer-advocate gathering this past winter to "send a message to Wall Street and their Republican friends, they better think twice about undermining financial reform."   

When President Barack Obama announced Cordray as the CFPB's first director in a White House ceremony, Warren stood with them at the podium.

Still, with Republicans now in charge of both Congress and the White House, the consumer agency must face a host of assaults. It refused comment on its situation. Here's a list of perils that confront the CFPB:

Legislative end run. If Dodd-Frank passes the House but can't muster the 60 votes to overcome a Senate Democratic filibuster, the GOP Capitol Hill leadership can always turn to a procedure called reconciliation. With this, Republicans need only deliver a simple majority in both chambers. The hitch is that the measure must affect the federal budget. 

With the CFPB, that test would be met, contended Norbert Michel, a senior research fellow at the conservative-leaning Heritage Foundation. By adding the agency to the federal spending authority, and removing it from the Federal Reserve's financial support, "this has a budgetary impact." he said.

Court fight. The Trump Department of Justice has launched an attack on the CFPB's independence in court, claiming that its current set-up is not constitutional because the director is not answerable to the president. It seeks to bolster a case brought against the bureau by a mortgage company. 

The anti-CFPB side won before a three-judge panel of the District of Columbia Circuit last year, but thanks to an appeal, the case now goes to the full roster of judges on the court. A decision is expected in the fall. 

If the CFPB loses in court, it cannot appeal to the Supreme Court, said Joe Rubin, senior counsel at the Washington law firm of Arnall Golden Gregory. That's because it would need the approval of the Justice Department to do so.

Cordray's looming departure. The bureau director's term ends in July 2018. So if all else fails, Republicans can wait him out and depend on President Trump to name a replacement more to their taste. That person could go about dismantling a lot of its activities. 

And lawyer Rubin said it's possible Cordray, the Democratic former attorney general on Ohio, could return home and run for governor. "The filing deadline is February 2018," he said.  

"It's a win for Republicans either way,'' Heritage's Michel said. "Cordray is a lame duck.''  

  • Larry Light

    Larry Light is a veteran financial editor and reporter who has worked for the Wall Street Journal, Forbes, Business Week, Money, AdviceIQ and Newsday.