The Revenge of Richard Nixon: The Consumer Financial Protection Bureau Spreads Its Tentacles

[Valin]

Liberty Law Blog:

Todd Zywicki

8/10/12

 

Last month marked the one-year anniversary of the Consumer Financial Protection Bureau (CFPB). At the time the Bureau was created I predicted that it would be a bureaucratic train wreck: an institution that is almost perfectly designed to manifest all of the worst pathologies that scholars of regulation have identified over the past several decades. Unfortunately, its operations to date have confirmed those fears.

 

The institutional structure of the CFPB is novel in American history—not merely an independent agency, it is an independent agency tucked inside another independent agency (the Federal Reserve). Its decision-making is not only independent of any review by the President or Congress, but also from the Federal Reserve itself. Its budget is independent from the congressional appropriations process and is instead drawn directly from the operating revenues of the Federal Reserve, a sum that will rise to 12% of the Federal Reserve’s operating expenses by 2013 (an estimated budget of $448 million). The only check on CFPB’s power is the power of the Financial Stability Oversight Council (FSOC) to veto actions by the CFPB but even then the veto can be exercised only by a 2/3 vote of the Council and only if the proposed action would seriously threaten the safety and soundness of the American financial services system.

 

Unlike most independent agencies the CFPB is not headed by a multi-member commission: even the Federal Reserve has a multi-member commission structure. Instead, it is headed by a single director appointed for a fixed term of 5 years and removable only for cause, such as corruption or complete dereliction of duty. Its powers are vast and vaguely defined: the power to regulate or even ban any product or loan term that it considers to be “unfair, deceptive, or abusive,” to engage in rule-making, or to bring litigation, including seeking penalties of up to $1 million per day for violations.

 

 

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What may be most striking about the CFPB is not just its extraordinary combination of power and unaccountability—although it may be the single most extreme combination of power and unaccountability in American history (except for those that have been struck down as unconstitutional). It is the way in which CFPB ignores virtually all of the lessons of sound regulatory design that has been learned over the past century. In fact, the CFPB resembles some sort of creature from Jurassic Park frozen in amber during the Nixon Administration and thawed out by President Obama to run the American economy.

 

(Snip)

[Pepper]

@Valin Just like you, to blame it all on Tricky Dick.