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The Consumer Financial Protection Bureau (CFPB) is once again at the centre of a dispute between lawmakers in the US, after a group of Republican senators introduced a bill that aims to abolish its direct funding mechanism.
Earlier this month, Republicans led by Senator Bill Hagerty (R-TN) introduced the CFPB Accountability Act, which would require CFPB funding to be annually appropriated by Congress.
If passed into law, the bill would effectively overturn a Supreme Court ruling from last month, which found that the CFPB’s direct funding mechanism is not unconstitutional.
As covered by Vixio, the Supreme Court ruled in a 7-2 vote that the CFPB can continue to fund itself directly through the Federal Reserve System, rather than through Congress.
Unlike other federal agencies, the CFPB is not funded on an annual basis by appropriations bills passed by Congress.
Instead, the CFPB director has exclusive authority to set the agency’s budget at up to 12 percent of the Federal Reserve System’s operating expenses for each fiscal year.
Whatever that amount is, the CFPB director is able to withdraw as much as is “reasonably necessary” to carry out the agency’s duties.
Hagerty introduced the bill following a hearing of the US Senate Banking Committee, with Senator Tim Scott (R-SC), the highest-ranking Republican on the committee, as a co-sponsor.
Other Republicans on the committee who co-sponsored the bill are Mike Crapo (R-ID), Mike Rounds (R-SD), Thom Tillis (R-NC), John Kennedy (R-LA), Cynthia Lummis (R-WY), Katie Britt (R-AL), Kevin Cramer (R-ND) and Steve Daines (R-MT).
In a joint statement, the co-sponsors described the CFPB’s current funding structure as “highly unusual” and “unaccountable” to the public.
“The CFPB must be required to go through the regular congressional appropriations process to ensure public accountability,” said Senator Hagerty.
“As a lifelong businessman, protecting consumers in the financial marketplace is important, but handing vast government regulatory power to an agency that is not accountable to the American people’s elected representatives is unacceptable.
“Americans deserve to have far greater input in this agency.”
'Burdensome' rule-making and politicised enforcement
The CFPB’s funding mechanism is not the only point of contention among the co-sponsors of Hagerty’s bill.
Other CFPB rule-makings and enforcement actions have divided lawmakers along party lines, with Republicans accusing CFPB director Rohit Chopra of politicising the agency.
At the Senate Banking Committee hearing, Senator Scott gave an address in which he criticised Chopra for his “burdensome” rule-making and “abuse” of enforcement powers.
Scott noted that many of the CFPB’s recent rule-makings have resulted in lawsuits being filed against the regulator.
The case that went all the way to the Supreme Court began as one such lawsuit, when it was filed by two trade associations that sought to overturn a new CFPB rule on payday lending.
The rule stipulates that payday lenders can lend only to consumers whose net income is deemed sufficient to cover all of their other monthly expenses and repay the loan on time.
Those who opposed the rule described the provisions as “draconian” and out of touch with modern workers, whose income and expenses can fluctuate significantly from one month to the next.
“All of these lawsuits take time, attention and resources away from the laws you should be implementing and enforcing as well as the American consumers you should be protecting,” said Scott.
Scott went on to accuse the CFPB of “coordinating” with the White House to score political points for the Biden administration.
He was also critical of the CFPB’s new rule on credit card late fees. Finalised in March this year, the rule limits the vast majority of credit card late fees to $8.
“While the rule may save some folks around $20 dollars each time they make a late payment, how much will it cost these same consumers when they no longer qualify for a credit card because they haven’t paid their balances on time?” said Scott.
“How much will it cost them when their credit score drops as a result of these late payments?"
During the hearing, CFPB director Chopra said that, since its creation in 2011, the CFPB has returned $20.7bn to consumers through enforcement activity.
He also said the agency has secured “unquantifiable returns” for more than 205m Americans and businesses that have been harmed by illegal practices reined in by the CFPB.
“We are currently on track to save customers $20bn in junk fees every year,” said Chopra. “We also expect to process over 2m complaints this year.”
