Garnet Capital Advisors Blog

Should the leadership structure of the Consumer Financial Protection Bureau be changed from a single director to a five-person, bipartisan commission? It's been an argument since the idea for such an agency formed in the mind of then-professor Elizabeth Warren.

Point, counterpoint
The latest effort to alter the agency's structure comes in the form of HR1266, the Financial Product Safety Commission Act of 2015. The arguments on each side are, by now, well-rehearsed.

Republicans, who have passed the measure out of committee, say the regulatory body's structure should match that of similar agencies, like the Securities and Exchange Commission, Federal Deposit Insurance Corp. and Federal Communications Commission. Further G.O.P. talking points include that the CFPB as currently set up has too much power and too little accountability.

Most Democrats, despite two defections in the most recent committee vote, take the line that turning the CFPB leadership structure into that of a committee is simply a way to neuter the agency.

Clinton enters the fray
Democratic presidential candidate Hillary Clinton jumped into the debate recently with a letter to fellow party members urging them to resist a switch away from a unitary director.

"Currently, a single presidentially-appointed director leads the CFPB, providing effective and responsive leadership," according to a copy of the letter obtained by Politico. "When a financial institution is breaking the law or ripping off consumers, decisions can be made quickly and forcefully."

Some observers saw Clinton's strong defense of the bureau as part of an effort to fend off challenges from her left by Sen. Be?rnie Sanders and Maryland Gov. Martin O'Malley. It's a complicated stance for Clinton, who receives deep financial support from Wall Street. Her letter makes the argument that the CFPB has been too successful for its own good, in Republican eyes, noting that since 2010 it has taken 700,000 complaints and recovered more than $11 billion on behalf of over 25 million people.

"If this bill passes," Clinton wrote, "consumers' primary advocate in the U.S. government would have to fight with one hand tied behind its back. Perhaps that's exactly what Republicans and their corporate allies want."

Original idea was for a commission
Proponents of the change point out that the original vision for the agency foresaw its leadership being a bi-partisan commission. An op-ed from six prominent bankers, recently published in The Hill, argued just that.

"Now five years later [after the establishment of the CFPB], the merits of the original structure remain," wrote the high-powered group, whose members included Frank Keating, president of the American Bankers Association. "A bipartisan board ensures certainty, fairness, and—most important—a stable form of leadership that would preserve the Bureau's role regardless of which political party is in the White House."

This particular talking point may become more attractive to Democrats should the eventual Republican presidential nominee look likely to win in 2016. As American Banker pointed out in a news analysis, CFPB Director Richard Cordray's five-year term expires in 2018, giving a G.O.P. president the ability to select "someone who could drastically shift the agency's approach to policing the banking industry."

An existential fight?
Looming in the background of this seemingly arcane matter of governance structure is whether the agency even has a future, wrote Keating and his co-authors.

"Members of Congress resistant to the commission structure must ask themselves this pivotal question: Am I willing to risk the very existence of the CFPB tomorrow," the op-ed read, "because I am unwilling to support a bipartisan board today?"

Keating and company cited three recent issues as evidence the bureau needs more ideological diversity in its leadership: the proposed payday lender rule, the timing of the just-passed deadline for "Know Before You Owe" mortgage disclosures and criticism of the CFPB's in identifying alleged racial bias in the car loan market.  

"Those who are supportive [of changing to a commission] rightly see that an agency that allows for transparent, robust debate from multiple experts is more likely to preserve consumer choice and strengthen consumer access to credit." Keating and his colleagues wrote.

Prospects look dim without GOP presidential surge
But while the reform will certainly sail through the Republican-dominated House, its chances of getting enough Democratic support in the Senate to override a likely veto by President Barack Obama remain slim, American Banker said.

The CFBP is, of course, a key regulator whose action - and inaction - has broad impacts in the banking sector generally and in secondary market for loans particularly. Any questions or concerns can be discussed with loan sale advisory firm Garnet Capital Advisors.