The Obama administration recently selected Richard Cordray to run the new Consumer Financial Protection Bureau (CFPB). Senate Republicans have threatened to stall the nomination until the administration and Senate Democrats agree to structural changes for the bureau.
Among those changes, they want the CFPB to fall under a five-member commission rather than a single director. Senate Democrats and the Obama administration have labeled the debate a partisan attempt to destroy the agency or stall a qualified nominee. That characterization is dead wrong. The CFPB will have jurisdiction over financial products we use every day, such as home loans, credit cards and student loans. It will enjoy unprecedented discretion in its oversight of those products and will function independently of the congressional budgetary process. That discretion will be vested in a single director who will exercise substantial power over the American economy.
Most independent agencies, such as the Federal Communications Commission and the Securities and Exchange Commission, operate under statutory bipartisan membership requirements. At least two of the five members are either Republicans or Democrats. The CFPB structure departs from that precedent and will hinder the agency’s mission.
On a five-member commission, the staff within each office helps the commissioners debate ideas at an open meeting, but with a single director, the agency resembles more a palace of courtiers than a deliberative lawmaking body. A bipartisan commission allows open dialogue and lets dissenting members draw attention to a chairman of either party whose agenda strays to the extreme right or left.
Minority commissioners also can serve as voices for dissent in the public arena on behalf of agency employees, who are forbidden from disagreeing with their agency head in public. Independent agency members also cannot be removed by the president without cause. This unique independence is another reason the agency’s powers are best spread among a five-member commission.
A commission would do a better job of protecting consumers by passing stronger rules less likely to be rescinded under one administration only to be renewed under the next. A commission would reduce costly uncertainty facing businesses tired of the pendulum swings of Beltway policymaking. Rules passed under a unanimous vote by a five-member commission, after tough internal debates among the commissioners, will be more firmly established.
One of Abraham Lincoln’s greatest strengths was the dissenting voices in his Cabinet. Building consensus among the likes of William H. Seward, Salmon P. Chase and Edward Bates was difficult, but once his team forged a compromise, his policies were more fortified against challenge. Independent agencies structured as commissions have seen similar benefits.
At some agencies, the necessities of rapid decisions affecting national security require a single director. The CIA and the FBI are ideal agencies for sole directors because they have no rule-making powers. The CFPB is an odd duck to pair against these two agencies.
The Constitution established three branches a legislative branch to write laws, an executive branch to enforce laws, and a judicial branch to interpret laws. Independent agencies, however, effectively serve all three governmental functions. For example, the Dodd-Frank Act gives little guidance but wide authority to the CFPB to write new rules for financial products.
The executive branch was given one head to enforce the law. The framers, however, realized the importance of deliberation in lawmaking and legal interpretation, so they chose six members of the Supreme Court (now grown to nine) to interpret laws and a body that has grown to 535 seats in Congress to write laws. The same logic argues in favor of multiple voices at the top of an agency that in practice both makes and interprets laws.
The Democrats’ present inflexibility is a surprising about-face. A bipartisan commission to lead the CFPB was called for in the Obama administration’s initial plan as well as in bills introduced by Rep. Barney Frank of Massachusetts and then-Sen. Christopher J. Dodd of Connecticut and endorsed by dozens of congressional Democrats.
The initial inspiration for the CFPB is found in an academic article written by Elizabeth Warren, the controversial figure whom the Obama administration originally hoped to appoint to lead the agency. She also apparently used to agree with the Republican proposal.
The Democrats are being remarkably shortsighted. One day, the Republicans will be in power again and their nominee is likely to disagree with the decisions of previous Democratic CFPB directors. When that time comes, Democrats will learn to regret their rigidity on this issue but the real cost will be to the credit system in the form of bad rules that swing excessively left and right with each administration.
J.W. Verret is an assistant law professor at the George Mason University School of Law and a scholar at the Mercatus Center.