A Tale of (Almost) No CFPBs
Is the CFPB the right agency to protect consumers? Two scholars have recently argued that it should be the FTC, not the CFPB, that serves as the sole consumer finance protection regulator. But is that even possible? Maybe, but it won’t be easy.
In a previous piece I discussed two different visions of what the CFPB should become. One option is a market regulating commission with relatively broad prospective power, the other is a civil law enforcement agency with a sole director, reliant on Congress’ specific delegations of authority. However, there is a third possibility — effectively doing away with the CFPB all together and relying instead on the Federal Trade Commission (FTC) to protect consumers of financial services. This is the provocative proposal put forward by Alden Abbott and Prof. Todd Zywicki as part of the Heritage Foundation’s new book, Prosperity Unleashed.
Abbot and Zywicki argue that while consolidating consumer protection responsibility in one agency makes sense, the FTC, not the CFPB, is the best candidate. They present several reasons why the FTC would be a better vehicle for consumer protection. First they argue the FTC’s commission structure provides moderation, continuity, and broader expertise (a position I share). Second, they argue that the FTC being subject to the appropriations process provides greater accountability. Finally Abbott and Zywicki argue that the FTC’s experience with economic analysis of the costs of regulation would lead it to better enable competitive markets, compared to what they see as the CFPB’s tendency to replace the consumer’s judgement with command-and-control style regulation.
So how would this work? It is unlikely that the CFPB could be actually eliminated. Doing so would require getting 60 votes in the Senate to overcome the inevitable filibuster, and it is doubtful that, even assuming the GOP held together (which is not a sure thing) there would be eight Democrats willing to kill the CFPB.
But what if the CFPB didn’t need to be dead? What if it just needed to be mostly dead? There is a possible path to that through the process of budget reconciliation. Budget reconciliation allows for the Senate to pass laws that impact spending, revenues, or the federal debt limit (with some exceptions) without the need to overcome a filibuster. This process could be used to make the CFPB subject to the appropriations process.
From there Congress could “simply” not appropriate any funds to fund the CFPB. I put simply in quotes because while the process would be simple the politics would not. Defunding the CFPB would be an incredibly controversial move. But let’s say a majority in Congress wants to go forward, what happens?
Congress putting the CFPB on budget and then not allocating funding would not get rid of the CFPB, it would not remove its authorities or get rid of any rules the CFPB had already finalized, and it wouldn’t remove the current CFPB director. What it could do however is make it impossible for the CFPB to conduct regulatory or enforcement actions because all of those cost money.
Having left the CFPB director as a king without a kingdom what would the result be? Panic? Anarchy? The collapse of civilization? Probably not, especially if another agency was able to fill the same role. Enter the FTC. While many of the other regulators have had all of their consumer financial protection functions transferred to the Bureau the FTC retains its authority under the Federal Trade Commission Act (FTCA) to enforce the prohibition of unfair or deceptive (but not abusive) acts or practices. The FTC is also able to enforce rules prescribed by the CFPB under its FTCA authority.
This doesn’t mean that the FTC has the same scope as the CFPB. The FCTA does not apply to banks and credit unions. It also lacks the authority to prohibit “abusive” acts and practices. It is possible however that the same reconciliation effort that places the CFPB on budget could also shift some or all of those authorities to the FTC. (I say possible because any effort would need to be approved by the Senate parliamentarian as not violating the Byrd Rule that prohibits using reconciliation for matters that are “extraneous” to the budgetary process, and divining the parliamentarian’s will is beyond me.)
While Abbott and Zywicki make a strong case that the FTC would be the better financial consumer protection regulator, reconciliation and defunding of the CFPB is a blunt tool to get there. Of course, the CFPB was designed to insulate it from the more subtle tools traditionally used to instill accountability, such as executive control over leadership, congressional control over the budget, or a multi-member commission structure. If only blunt tools are left only blunt tools will be used. If the current status quo CFPB is considered unacceptable by a majority of Congress we may see a world with (almost) no CFPB and a significantly more powerful FTC.