U.S. Rep. Andy Barr hosted a hearing on the CFPB’s funding processes and Congress’ options to step in with legislation.
04/22/2024 2:20 P.M.
6 minute read
While the U.S. Supreme Court’s decision on the constitutionality of the Consumer Financial Protection Bureau’s funding structure is pending, members of Congress discussed the topic in an agency audit hearing, “Reviewing CFPB Financial Reporting and Transparency.”
“The Supreme Court has the opportunity to confirm what Republicans have said all along—the CFPB’s unaccountable funding structure is unconstitutional, and the agency must be brought under the appropriations process,” said U.S. Rep. Andy Barr, R-Ky., chair of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy in his opening remarks at the hearing, available on video here. “Congress should act now to reassert the power of the purse and ensure unelected bureaucrats do not have the ability to run roughshod over personal rights of consumers and law-abiding businesses.”
The case Barr mentioned is CFPB v. Community Financial Services Association of America Ltd. (CFSA), which stems from a 5th Circuit Court of Appeals’ decision that the bureau’s funding structure is unconstitutional and violates the appropriations clause.
“There must be guardrails on a rogue agency like the current CFPB, and that must at least begin with holding the CFPB’s use of federal resources accountable, transparent, and subject to [c]ongressional checks,” Barr said.
CFSA filed suit against the CFPB and Director Rohit Chopra challenging the bureau’s 2017 payday lending rule on the grounds the rule is not valid because the CFPB’s funding structure is unconstitutional.
The CFPB appealed the decision and its petition for the Supreme Court to review the case was granted, ACA International previously reported.
A decision on the case is expected by the end of June.
One of the remedies discussed during the Supreme Court’s oral arguments last October was whether the court should let Congress revisit the issue of how the CFPB is funded—currently through the Federal Reserve rather than the congressional appropriations process.
During the hearing, House subcommittee members discussed Congress’ ability to take back “power of the purse” over the CFPB as well as whether audits of the CFPB’s financial transactions meet federal standards and reflect spending transparency by the bureau.
The Dodd-Frank Act requires that the financial statements of the CFPB not be consolidated with the financial statements of either the Board of Governors of the Federal Reserve System or the Federal Reserve System. In addition to audited financial statements, the CFPB publishes a five-year strategic plan, along with unaudited budget and performance documents.
The Government Accountability Office (GAO) audits the CFPB’s financial statements annually and issues a report, but some members on the subcommittee argued that is not enough to ensure financial accountability of the bureau.
“While the GAO audits the CFPB’s attestations about its financial condition, those audits have important caveats identifying that GAO is only monitoring numbers and not policy or budgeting decision,” Barr said. “Moreover, an additional ‘independent audit’ is required by statute, but the CFPB does not seem to take this mandate seriously. The most recent audit was a mere [nine] pages long and curiously contained zero findings or recommendations.”
Concerns about the CFPB’s funding process during the hearing crossed over to how a lack of financial oversight from Congress leaves the bureau with equal unchecked power for implementing regulations.
In response to legislators’ questions, hearing panelists Brian Johnson, managing director for Patomak Global Partners LLC and former deputy director for the CFPB, and Adam White, senior fellow with the American Enterprise Institute, said they felt the CFPB could operate successfully under congressional appropriations, similar to other federal agencies.
Yet the CFPB remains unique in its funding structure, especially after the Supreme Court’s decision in Seila Law LLC v. Consumer Financial Protection Bureau, where the court found that the bureau’s restrictions on removal of the CFPB director were unconstitutional and ruled that the president can remove the director at will, not only for cause.
The bureau is accountable to the White House, but not Congress, Johnson explained.
Others opposed a Supreme Court ruling against the CFPB’s funding structure and the hearing altogether.
U.S. Rep. Bill Foster, D-Ill., ranking member of the subcommittee, said a ruling against the CFPB would be “massively destructive.”
U.S. Rep. Maxine Waters, D-Calif., ranking member of the full House Financial Services Committee, said in her opening remarks that the hearing could have focused on strengthening consumer protections, not an audit of the CFPB’s financial reporting.
Hearing panelist Chris Peterson, a professor of law at the University of Utah who also previously worked at the CFPB, said the bureau is not unlike other federal agencies with funding outside of congressional appropriations, such as the U.S. Post Service. In his testimony (PDF), Peterson noted that “appropriations laws authorizing executive funding outside of annual spending bills became the norm among federal financial services regulatory agencies created since the beginning of the 20th century.”
The hearing discussion came down to the impact of the bureau’s regulatory approach and lack of funding oversight from Congress on consumers and small businesses—and how Congress can respond if the Supreme Court upholds the bureau’s funding structure.
“A rogue CFPB under Director [Rohit] Chopra is no help to consumers, even if advocates of the CFPB tout the amount of fines and damages awards the CFPB claims to have generated,” Barr said in his opening remarks. “The sanctions generated have costs and they also come at the social cost of Director Chopra’s blanket indictments of hard-working and honest workers throughout the financial system.”
ACA’s Take
The case pending a decision from the U.S. Supreme Court could have a significant impact on the bureau’s funding and regulatory authority. It comes at a critical time for the accounts receivable management (ARM) industry since the CFPB has released its latest rulemaking outline related to the Fair Credit Reporting Act.
ACA filed an amicus brief (PDF) for the case submitted by Brownstein Hyatt Farber Schreck LLP, counsel Christopher Murray supporting CFSA.
In the amicus brief, ACA argues that the Supreme Court should affirm the 5th Circuit’s decision on the CFPB’s funding structure but delay its implementation for six months to allow Congress time to consider options, including one option to potentially reconstitute the bureau while minimizing disruptions for consumers and regulated entities.
Regarding rulemaking, ACA also weighed in on the credit card late fee rule, which is currently set to take effect May 14.
The most concerning moral hazard presented by the CFPB’s rule has yet to be mitigated. In addition to the consequences articulated by the Senate and House committee members, the problem is there has been no research or data to determine what the cost vs. benefit will be when credit card holders do not make their minimum payment on time. The “message behind the message” will cause acute consequences for borrowers that pay late. Creditors who cannot recoup costs will be forced to consider limiting product offerings, constricting credit or charging more for credit. To date, no mitigation efforts—such as increased education tactics—have been announced by the CFPB.
Similar concerns on data-driven decisions and cost-benefit analysis arise with the CFPB’s FCRA outline and pending Notice of Proposed Rulemaking (NPRM)—and have been communicated extensively with the bureau through comments and ACA’s participation in the Small Business Review Panel.
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