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During the Republican presidential debate in Milwaukee, Carly Fiorina brought up an issue that delves deep into the weeds of the federal regulatory system.
She took aim at the Dodd-Frank Wall Street Reform and Consumer Protection Act, a law passed by a Democratic Congress and signed by President Barack Obama that placed significant new regulations on the financial services sector.
Fiorina called Dodd-Frank "the classic of crony capitalism. The big have gotten bigger, 1,590 community banks have gone out of business, and on top of all that, we've created something called the Consumer Financial Protection Bureau, a vast bureaucracy with no congressional oversight that's digging through hundreds of millions of your credit records to detect fraud. This is how socialism starts, ladies and gentlemen. We must take our government back."
We wondered: Was Fiorina right that, unlike other federal regulatory agencies, the Consumer Financial Protection Bureau has "no congressional oversight"? We took a closer look.
An unusual structure
First, some background on the bureau. Its mission is to "protect consumers by carrying out federal consumer financial laws." This includes enforcing consumer financial protection laws, following up on consumer complaints, promoting financial education, conducting research on consumer behavior, and monitoring financial markets for risks.
New agencies that seek to police well-established industries are often controversial, and the bureau is no different. Its champion was Elizabeth Warren, a liberal icon who was considered the likely first head of the bureau until her appointment was effectively blocked by Republicans in Congress. Obama’s second choice, Richard Cordray, was also kept from taking office until Obama sidestepped GOP lawmakers by making a controversial recess appointment. Cordray was ultimately confirmed with some bipartisan support in 2013. (The bureau declined to comment for this story. We did not hear back from Fiorina’s campaign.)
Fiorina has a point that by Washington standards, the bureau is unusually unfettered by oversight, congressional and otherwise -- something specifically designed to limit any influence by the financial sector it oversees.
Perhaps the clearest example of this long leash is that, unlike most federal agencies, the bureau does not rely on appropriations for its funding. That means that Congress doesn’t approve the bureau’s budget every year. Instead, the bureau’s operating budget comes from the Federal Reserve, currently capped at 12 percent of the Fed’s total operating expenses. This works out to about $600 million a year today.
Those who are skeptical of the bureau say that seriously hampers Congress’ oversight ability.
"Oversight without any budget leverage has turned out to be completely hollow," said Todd J. Zywicki, executive director of the George Mason Law and Economics Center at George Mason University and a frequent commentator on the issue.
Brenden D. Soucy, a Miami-based lawyer, wrote an article critical of the the bureau’s degree of congressional oversight in the Florida State University Law Review in 2013. He called the bureau "the most independent agency in United States history."
"The CFPB’s extreme independence is touted as one of its greatest virtues, but history has shown that while independence from political pressure can be a virtue, near total isolation is not," Soucy wrote.
Congress does have some levers of influence
So it’s clear that Congress lacks an important -- and perhaps the most important -- lever for allowing lawmakers to oversee and guide the agency. But does that really equal "no congressional oversight"?
Not really. Here are a number of ways in which Congress can oversee the bureau:
• Congress can use legislation to change (or even abolish) the bureau. Indeed, there’s currently legislation in both chambers to enshrine a variety of transparency standards, some of which passed the House Financial Services Committee with bipartisan backing.
• The Senate must confirm the head of the bureau.
• The board’s director must testify at least twice a year before the Senate Banking, Housing, and Urban Affairs Committee; the House Financial Services Committee; and the House Energy and Commerce Committee. The bureau must also submit semi-annual budget justifications.
• The bureau is subject to an annual financial audit by the Government Accountability Office, a congressional agency.
Combined with other checks and balances by other parts of the executive branch and the judicial branch, this is a list of oversight mechanisms "that will measure up against any regulatory agency in Washington," Warren, the bureau’s patron saint, wrote in an October 2015 op-ed.
Other experts in government regulation and oversight don’t go this far -- but they add that Fiorina’s characterization is an exaggeration.
‘The CFPB has a lot longer leash that almost any other federal agency," said Donald F. Kettl, a professor at the University of Maryland School of Public Policy and a senior fellow at the Brookings Institution. But, he added, "Congress did it on purpose. Congress can change it."
And Soucy, the lawyer who wrote critically of the lack of congressional oversight, agreed that Fiorina went too far with this statement.
"While the CFPB is nearly completely free of congressional oversight, it is not true to say that it has ‘no’ congressional oversight," he said.
Fiorina said the Consumer Financial Protection Bureau has "no congressional oversight."
She has a point that where the bureau is concerned, lawmakers lack one of their strongest levers of influence -- the power of the purse. This makes it reasonable to say that the bureau has an unusually low amount of congressional oversight.
However, "low" does not equal "none." Lawmakers are already flexing their muscles by advancing laws that would stiffen the bureau’s transparency rules, and the bureau’s Senate-confirmed director must testify and provide financial documentation at least twice a year to three separate congressional committees. The bureau must also be audited annually by an arm of Congress, the Government Accountability Office.
The statement is partially accurate but leaves out important details, so we rate it Half True.
Carly Fiorina, comments at the Republican presidential debate, Nov. 10, 2015
Congressional Research Service, "The Consumer Financial Protection Bureau (CFPB): A Legal Analysis," January 14, 2014
Todd Zywicki and Chad Reese, "Redundant Today, Essential Tomorrow" (op-ed), June 30, 2015
Brenden D. Soucy, "The Consumer Financial Protection Bureau: The Solution or the Problem?" (Florida State University Law Review), 2013
Consumer Federation of America, "Accountability of the Consumer Financial Protection Bureau," accessed Nov. 12, 2015
Elizabeth Warren, "The Banking Industry's Transparent Attempt to Weaken the CFPB" (op-ed), Oct. 20, 2015
ACA International, "U.S. Senator Introduces Legislation to Provide Congressional Oversight of CFPB," May 27, 2015
Email interview with Brenden D. Soucy, associate with Levine Kellogg Lehman Schneider & Grossman LLP, Nov. 12, 2015
Email interview with Todd J. Zywicki, executive director of the George Mason Law and Economics Center at George Mason University, Nov. 12, 2015
Email interview with Donald F. Kettl, a professor at the University of Maryland School of Public Policy and a nonresident senior fellow at the Brookings Institution, Nov. 12, 2015
Email interview with John M. Palguta, vice president for policy at the Partnership for Public Service, Nov. 12, 2015
Email interview with Lacey J. Rose, press secretary for Elizabeth Warren, Nov. 12, 2015
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