Will the CFPB still protect consumers?

Some finance industry groups, including the Mortgage Bankers Association, have expressed support for the Supreme Court’s Monday decision that the president could fire the director of the Consumer Financial Protection Bureau at will. However, a constitutional law scholar worries that the decision opens the door to consequences that will erode consumer protections.

The court’s 5-4 decision allowed the CFPB to keep operating, but found that its current leadership structure – with a single director who could only be fired for cause – violated the Constitution’s separation of powers rule. MBA President Bob Broeksmit voiced support for the decision, calling it an “appropriate remedy.” Rob Nichols, president and CEO of the American Bankers Association, said the ruling “resolves important questions” about the CFPB’s structure, and recommended the director be replaced by a five-member commission.

But David Driesen, constitutional law scholar and professor at Syracuse University, said the court’s decision has dangerous implications for consumers.

Driesen said the decision was risky because it allowed the director of the CFPB – an agency that is supposed to be free of the vicissitudes of politics – to be fired for political reasons.

“It legitimizes dangerous practices. It’s going to be a political decision (to hire or fire a director),” Driesen told MPA. “Let’s say Trump got reelected. I think he would use all his authority to protect his friends and harm his enemies. You could have somebody in there who’s not protecting consumers – you could have someone in there who uses that power to harm companies that Trump doesn’t like and reward companies he does.”

It’s not just the current president Driesen is worries about. He said that the term limits of the presidency itself – and the likelihood of a new president immediately replacing the CFPB director – could hamper the agency’s effectiveness.

“It’s going to make it really hard to protect consumers,” he said. “A lot of the things the CFPB has to look into take a while to investigate. And as long as you have the polarized political situation we have now, it’ll be hard to make progress, because every four years you’ll get someone new. Occasionally you’ll get someone in that job who’s not interested in protecting consumers. And they may get sued to force them to do the job – but it’s really hard for courts to force someone to enforce the law when they don’t want to.”

Driesen said that the ABA’s recommendation to put the agency’s leadership in the hands of a commission could restore a measure of independence.

“The court is distinguishing this on the grounds that a single director is different than a group of directors in a constitutionally significant way,” he said. “So it’s possible that a Congress that really wanted consumer protection could reestablish the independence of the bureau by creating a commission instead of a single-director structure.”

But ultimately, Driesen said, it’s important for the CFPB to have leadership that isn’t beholden to the political flavor of the month.

“The structure is a response to the observation that the financial industry has largely protected itself from regulation,” he said. “I think that was more of a bipartisan problem than people think – it wasn’t just Republicans. But this structure was supposed to be a remedy, and that independence is really important.”