OPINION

Step away from the pen, Mr. Cordray

Brian Knight and Michael Wilt

The Consumer Financial Protection Bureau is an agency that was born into controversy and remains polarizing. Recently, the U.S. Court of Appeals for the District of Columbia declared the bureau’s original structure of one director, Richard Cordray, unable to be removed without cause, unconstitutional.

In light of this rebuke, and the desire from voters for a change from the status quo, the bureau should abstain from rushing regulations before the new president takes office.

As a new administration prepares to take over the reins of government, federal agencies sometimes seek to adopt last-minute regulations. These so-called “midnight regulations” are often rushed through the regulatory process and are supported by lower quality analysis of the costs and benefits. The CFPB should act in good faith and take the time to give the public’s comments on bureau rule making the weight and consideration they deserve.

The proposed rules on arbitration and payday lending have sparked great public interest. The payday rule has received 1.4 million comments. Many of these comments are from consumers of these products —the people the bureau was established to protect — concerned about how the CFPB will negatively affect their lives.

The CFPB needs time to consider carefully and respond to valid concerns raised by commenters. The proposed rules on payday lending and arbitration would affect substantial change in financial services markets, affecting millions of consumers and their access to credit.

The bureau should exercise restraint not only out of a desire to get the rules right but also out of concern for its legitimacy. As originally structured, the CFPB lacked accountability to Congress and the president. A recent federal appeals court decision held the CFPB’s structure as an independent agency with a single, independent director to be unconstitutional. As the court noted, “Other than the president, the director of the CFPB is the single most powerful official in the entire United States government.”

The court addressed the problem by giving the president the authority to fire the director for reasons other than neglect of duty. The president now has authority to monitor the CFPB’s work and remove the director, just as he could most other agency heads, for any reason at all.

The CFPB should avoid overly aggressive action until the new president is able to decide who he wants as director. There is tremendous uncertainty about the future of the CFPB, so any contentious new rules enacted in the waning days of the outgoing administration would likely be viewed as illegitimate attempts to dictate policy for the new administration. This may lead to the rules being overturned, causing uncertainty in the industry.

Rather than subjecting the financial industry to whipsaw policy, the CFPB and its director should step away from the pen. Instead, the bureau should spend its time working through the information it has received in response to its proposals so that the new administration can make informed decisions. The broad goals of the CFPB — to protect consumers and encourage access and innovation in financial products — remain unchanged, and the best way for the CFPB to advance those goals is to wait until after the inauguration to finalize policy.

Brian Knight is a senior research fellow in the Financial Markets Working Group with the Mercatus Center at George Mason University. Michael Wilt is a senior policy writer and editor with the Mercatus Center. This has been adapted from InsideSources.