For a guy who supposedly likes to fire people, President Trump has been strangely reluctant to remove Consumer Financial Protection Bureau (CFPB) director Richard Cordray. Yet his own Treasury Department has made an excellent case for dismissal.
Last week Treasury issued a report with recommendations to increase certainty, consumer choice and access to credit in the financial system. Big banks are cheering proposed changes to relax liquidity and capital standards, but reforms to the CFPB might matter to more people.
Some of Treasury’s recommendations would require legislation—such as making the agency subject to congressional appropriations—though most could be achieved through regulatory and procedural changes by the CFPB. The problem is that Mr. Cordray won’t accept curbs on his power. Dodd-Frank states that the President may remove the director only for “inefficiency, neglect of duty, or malfeasance in office” rather than at-will like other agency heads. Yet the report enumerates a litany of ways in which Mr. Cordray has flouted the law.
Treasury notes the “CFPB has avoided notice-and-comment rulemaking and instead relied to an unusual degree on enforcement actions and guidance documents.” The Administrative Procedure Act requires regulatory agencies to issue formal rule-makings, or at least formal guidance, to explicate law. Mr. Cordray says “facts and circumstances” guide the bureau’s legal interpretations.
The CFPB has even refused to provide guidance to Congress on behavior that may constitute “unfair, deceptive, or abusive acts and practices.” Enforcement actions are its only guidance. In 2012 the agency published a compliance bulletin for credit companies in conjunction with a $210 million settlement with Capital One Financial Corp. for alleged deceptive marketing.
The CFPB targeted auto dealers, which Congress explicitly exempted under Dodd-Frank. The bureau charged discrimination based on a dubious disparate-impact analysis that guessed the victims’ race based on names and addresses. In January the CFPB accused student loan servicer Navient, which is regulated by the Education Department, of abusing borrowers by placing them in forbearance rather than loan forgiveness.
The bureau has also abused its authority by issuing sweeping civil investigative demands—essentially fishing expeditions—that lack the legal protections of subpoenas and motions for discovery for prosecuted parties. Targets can challenge the document demands, but the CFPB shames supplicants by publishing its rejections and has never publicly agreed to narrow the scope.
In April the D.C. Circuit Court of Appeals squashed a civil investigative demand to the Accrediting Council for Independent Colleges and Schools. The court whacked CFPB for extending its authority over a nonprofit that isn’t even tangentially involved in finance as well as failing to provide a description “of the conduct the CFPB is interested in investigating.”
The CFPB tries to avoid court rebukes by using its own administrative law judges to adjudicate cases, which occur on an expedited timeframe and lack the judiciary’s due process protections. Incredibly, the bureau says its enforcement actions are also not subject to a statute of limitations, which the D.C. Circuit last year held was “absurd.”
Treasury argues that the CFPB’s “lack of clear regulatory standards may lead to excessive risk-aversion among regulated parties thereby undermining innovation and consumer choice.” They also undermine the U.S. constitutional system of checks and balances.
The report recommends that the CFPB clearly define unfair, deceptive and abuses practices as well as issue rules subject to public comment and notice. Treasury also implores the bureau to curtail its use of administrative law judges and civil investigative demands, among other measures of self-restraint.
Mr. Cordray’s term doesn’t end until July 2018, and implementing Treasury’s reforms as well as attendant rule-makings could take more than a year. Meantime, Mr. Cordray can continue shaking down businesses with enforcement that he hopes will propel his expected campaign for Governor in Ohio. Mr. Cordray might not even mind being fired and becoming The Resistance’s next martyr. So why not give him the heave ho?