The Consumer Financial Protection Bureau: The New, Powerful Regulator Of Financial Products And Services

1. Introduction

   The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") created the Consumer Financial Protection Bureau ("CFPB") to oversee a broad array of financial products and services. Creation of the CFPB marked the first time in decades that Congress had formed a new federal agency. The political debate over who would lead the new agency initially overshadowed the more significant legal and policy concerns about the manner in which the CFPB was intended to operate. But now, after the procedurally controversial appointment of former Ohio Attorney General Richard Cordray on January 4, 2012, these broader concerns will be tested, both as a matter of governance and very possibly in the courts.

   The CFPB has (i) independence from Congressional or Presidential oversight, (ii) centralized power in a single individual, and (iii) a guaranteed budget that is a percentage of the Federal Reserve's operating expenses. The principal questions this memorandum asks are whether these characteristics of the agency are constitutional or well-advised, particularly in light of the significant powers that the CFPB possesses.

   The first sections of this memorandum provide a description of the powers of the CFPB and its structure. Because it is hard to appreciate the agency's structure in the abstract, we have provided a chart (Appendix A at the end of the memorandum) to highlight the differences between the CFPB's structure and those of other federal government agencies charged with related tasks. In the next part of the memorandum, we discuss briefly the question of whether the CFPB's operational procedures are consistent with the requirements of the Constitution. Finally, we turn back to the policy question of whether it is "good government" for Congress to authorize an agency (or, as a practical matter, the single person that is its head) to act with such independence from restraint or oversight from any of the legislative, executive, or judicial branches of the federal government.

   The questions raised in this memorandum are not a function of the agency's goal; that is a separate issue entirely. This memorandum instead primarily addresses the CFPB's structure within the government, and while this issue has been discussed since the early drafting stages of the Dodd- Frank Act, it is immediately relevant now that a CFPB director has started the agency's work.1

2. CFPB Purpose and Jurisdiction

   1. Formation of the CFPB

      The stated purpose of the CFPB is to implement and enforce federal consumer financial law: to enable all consumers to access the markets for consumer financial products and services while ensuring that these markets are fair, transparent, and competitive.2 Previously, these functions were intended to be served, in large measure, by other parts of the government. Pursuant to the Dodd- Frank Act, however, the CFPB assumes to a significant degree the consumer financial protection functions of the following federal agencies: the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the former Office of Thrift Supervision.3 The CFPB also assumes jurisdiction of the Department of Housing and Urban Development ("HUD") with respect to HUD's authority pursuant to the Real Estate Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, and the Interstate Land Sales Full Disclosure Act.4

   2. Key Definitions

      In addition to the consumer protection functions previously performed in these other agencies, the CFPB also has newly created regulatory and enforcement powers tied to three important...