Ed's Blog

Professor's paper on "Industry's Misguided Quest to Undermine the CFPB"

By Ed Mierzwinski
Senior Director, Federal Consumer Program

Last fall, U.S. PIRG co-hosted, with Americans for Financial Reform and the Consumer Federation of America, an academic symposium featuring a discussion of a forthcoming paper by Professor Art Wilmarth of George Washington University Law School,  perhaps the nation's leading bank law scholar. I am pleased to report that a close-to-final draft of Professor Wilmarth's paper -- The Financial Services Industry’s Misguided Quest to Undermine the Consumer Financial Protection Bureau -- is now available for review at the AFR website and will be published in the Spring 2012 issue of the Review of Banking and Financial Law at Boston University Law School.

The paper explains that the CFPB is fully accountable to the Congress, the industry and the public. It also provides an excellent history of the development of the idea of the bureau, with detailed analysis of the Congressional debate on alternative frameworks and the reasons that those alternatives were put aside. Here is a brief excerpt from the Introduction:

"Congress determined that a single federal authority dedicated to protecting consumers of financial services was needed in light of "the spectacular failure of the [federal] prudential regulators to protect average American homeowners from risky, unaffordable" mortgages during the housing boom that led to the current financial crisis. As stated in the Senate report, federal banking agencies ―routinely sacrificed consumer protection‖ while adopting policies that promoted the "short-term profitability" of large banks, nonbank mortgage lenders and Wall Street securities firms. The Senate report concluded that "it was the failure by the [federal] prudential regulators to give sufficient consideration to consumer protection that helped bring the financial system down." [...]  Contrary to the claims advanced by CFPB‘s opponents, Part III of this paper shows that CFPB‘s governance, powers and funding are similar to those of other federal financial regulators. CFPB‘s single-Director model of leadership is similar to the governance structure for the Office of the Comptroller of the Currency (OCC) and the Federal Housing Finance Agency (FHFA). CFPB‘s regulatory and enforcement powers are comparable to those exercised by OCC, FHFA, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB). CFPB‘s ability to fund its operations without relying on congressional appropriations is, again, comparable to the OCC, FHFA, FDIC and FRB. The financial services industry and its legislative allies have strenuously defended the governance structure, authority and independence of OCC and FHFA. Accordingly, it appears that CFPB‘s opponents are motivated by their opposition to CFPB‘s consumer protection mission rather than the bureau‘s structure (emphasis added)."

It is 69 pages long but worth the read for anyone who wants a concise, authoritative analysis of the CFPB's structure in comparison to that of other agencies, as well as a detailed account of the legislative history of the CFPB. AFR is indebted to Professor Wilmarth for participating in the symposium and allowing us to post the draft.

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