Democratize the CFPB

The Supreme Court ruled last week that Congress, when it created the Consumer Financial Protection Bureau, had every right to delegate the power of the purse over to the Federal Reserve.

That doesn’t mean it was a good idea. Republicans in Congress ought to introduce a bill to scrap the CFPB’s unorthodox and unaccountable funding mechanism. Democrats, because they claim these days to be the defenders of democracy, ought to get on board.

The CFPB is the brainchild of Sen. Elizabeth Warren (D-MA), and Congress created it as part of its response to the 2008 financial crisis. Congress had spent a century creating new financial regulators, but kept being frustrated by what’s called regulatory capture.

The players most interested in any regulatory agency are the regulated entities themselves. For this reason, the regulated companies invest in lobbyists and lawyers — many of whom they pluck from the ranks of regulators. Soon enough, regulator and regulated are partners. This partnership is bad for consumers, for taxpayers, and for the would-be competitors who are kept out of the marketplace by the industry-crafted regulations.

Warren wanted all the regulation without all the capture, and with no political influence. Her problem is that regulators, as part of the executive branch, take their marching orders from Congress, which is political by design.

So Warren decided the CFPB should be funded by the Federal Reserve as a way of removing “political influence” over the agency.

On its own terms, this effort to insulate the CFPB from political or industry influence has failed. Before Obama even left office, a dozen top CFPB regulators had cashed out to industry. “As it becomes evident that service on the CFPB can also lead to riches in the private sector, the agency will become increasingly plagued with the conflict of interest concerns that trouble the SEC and other regulatory bodies,” lamented Craig Holman of the left-wing good-government group Public Citizen.

“I would get calls from headhunters frequently, even right after I started working there,” one regulator said before cashing out.

But there’s a bigger problem with the CFPB’s structure — one the plaintiffs pointed out in their ultimately unsuccessful case: Government agencies shouldn’t be protected from politics because they shouldn’t be protected from democracy.

Shielding the CFPB from democracy was precisely Warren’s aim. She imagined wise and selfless regulators who would do the right thing if only they weren’t being leaned on by those pesky elected representatives of the public.


The CFPB should be funded by appropriations from Congress in order to maintain democratic control over this agency. You know, the whole government-by-the-people thing.

And if Warren wants to reduce regulatory capture, she should recall the wise words of a late conservative magazine man named Timothy Wheeler: The only way to get rid of corruption in the high places is to get rid of the high places.

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