From Toasters to Toast? What Tomorrow Holds for the CFPB

By Troy Epstein*

It was the summer of 2007, just before the financial crisis forest fire really started blazing, when Democracy published a timely article by then-Harvard Law Professor Elizabeth Warren. In this piece, Professor Warren argued for the creation of a federal Financial Product Safety Commission, or an agency that would evaluate financial products like mortgages and credit cards to eliminate hidden tricks and traps, establish guidelines for consumer disclosure, and collect and report data.[1] The proposed agency would develop expertise in consumer financial products and formulate nuanced regulations to ensure that these products met minimum safety standards.[2] Warren argued that consumers of financial products should be protected by a Financial Product Safety Commission just as consumers of toasters are protected by the Consumer Product Safety Commission.[3] Essentially: it’s important to keep dangerous toasters out of the marketplace, and it’s important to keep dangerous mortgages out of the marketplace too (see 2007-09 Financial Crisis).

Emergency financial stabilization programs created and carried out during the Great Recession—implemented by the Bush Administration and the Obama Administration—together constituted one response to the crisis.[4] Another, later response was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.[5] This law established a new independent agency, the Consumer Financial Protection Bureau (CFPB), and Professor Warren’s dream of a cop being placed on the financial products beat was realized. The CFPB was established so as to consolidate the existing authorities scattered throughout the federal government under one roof and was charged with overseeing the federal financial laws that specifically protect consumers.[6]

This new independent agency born from Dodd-Frank quickly hit the ground running. The CFPB has already worked to hold companies accountable for illegal practices, and has secured $11.7 billion in relief to consumers through enforcement actions.[7] More than 27 million consumers have received relief, and many other consumers have benefited indirectly from the CFPB’s work in shaping business practices.[8] Notable enforcement actions by the CFPB have included ordering Citibank to provide roughly $700 million in relief to consumers affected by illegal practices related to credit card add-on products and services, ordering RPM Mortgage, Inc. to pay $18 million in redress to consumers for illegally incentivizing loan originators to steer consumers into costlier mortgages, and, most recently, fining Wells Fargo Bank $100 million for the widespread illegal practice of secretly opening unauthorized deposit and credit card accounts.[9]

Despite this work, the Consumer Financial Protection Bureau is not an agency that is loved by all. Members of Congress have regularly attacked the agency since its creation, threatening to abolish it or significantly reduce its funding and power. A recent decision from the U.S. Court of Appeals for the District of Columbia and the results of the 2016 election make it a near certainty that the CFPB will be changed during the next four years.[10] It is not yet clear, however, what that change may entail or if change will be enough for the CFPB’s fiercest critics. These critics may want to bring things full circle, and transform an agency conceived in a law professor’s article that repeatedly mentions toasters into a piece of scorched toast.

The CFPB was designed to be a somewhat unique independent agency and not an executive agency. Independent agencies, like the SEC and the NLRB, have agency heads who are removable by the President only for cause, as opposed to executive agency heads who can be removed at will.[11] Standard independent agencies get their funds from congressional appropriations and, though the agency director is removable only for cause, are led by multi-member boards.[12] Dodd-Frank gave control of the CFPB to a single director without an accompanying board, but that director is still removable only for cause and not at will.[13] Additionally, instead of the CFPB getting its money from annual congressional appropriations, it was designed to get its money straight from the Federal Reserve System.[14] Dodd-Frank did, however, provide for nontraditional control mechanisms, such as the Financial Stability Oversight Council’s ability to veto certain CFPB regulations, which push back against effects that might be said to come with the agency’s unique design.[15]

These control mechanisms were not enough to prevent the U.S. Court of Appeals for the District of Columbia from ruling the structure of the CFPB unconstitutional.[16] The court held that the single director structure of the CFPB represented a gross departure from settled historical practice of independent agencies being headed by multiple commissioners or board members, and represented a threat to individual liberty.[17] It granted the President the power to remove the Director at will and at any time.[18] This ruling effectively turns the CFPB into an executive agency, albeit one that is still safe from the legislative budget process.[19]

This ruling is being appealed by the CFPB because it could, if not reversed, reduce the agency’s independence and its future technocratic expertise. Even if the ruling stands, however, it does not require closure of the CFPB or invalidate prior CFPB actions.[20] The ruling in terms of direct impact may be thought of as more of a poke than a slap for the CFPB. But, the opinion certainly drew a lot of attention from the media and from folks on the Hill. It may portend tough sledding ahead for the agency.

The CFPB is currently working on proposals that would rein in debt collectors and bar financial firms from using arbitration clauses to block customers from bringing class-action cases.[21] It is also almost done crafting rules governing payday loans and other small-dollar, high-interest consumer loans.[22] If the DC circuit’s ruling is upheld, the Trump Administration might be quick to appoint a new director of the CFPB who takes the agency in a different direction. Irrespective of the ruling’s future, Congress may very well pass a law that replaces the single director with a multi-member commission and subjects the agency to congressional appropriations.[23] The CFPB could be replaced with an agency with less authority and fewer tools, or it could be altogether eliminated.

If the words of House Financial Services Committee Chairman Jeb Hensarling provide us with any insight on the future of the CFPB, he’s said that the CFPB is arguably the “least accountable bureaucracy in American history” and that the agency has “infringed on the economic freedoms of consumers.”[24] Supporters of the agency might wonder, however, how economically free those consumers who were cheated out of money and received relief from the CFPB would have felt without relief and without the agency.


The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.

*Troy Epstein is a Junior Editor on MJEAL. He can be reached at troyeps@umich.edu.

[1] Elizabeth Warren, Unsafe At Any Rate, DEMOCRACY (Summer 2007), http://democracyjournal.org/magazine/5/unsafe-at-any-rate/.

[2] Id.

[3] Id.

[4] U.S. DEP’T OF THE TREASURY, Why TARP Was Necessary,  https://www.treasury.gov/initiatives/financial-stability/about-tarp/Pages/Why-TARP-was-Necessary.aspx (last visited January 25, 2017).

[5] U.S. DEP’T OF THE TREASURY, Wall Street Reform, https://www.treasury.gov/initiatives/wsr/Pages/wall-street-reform.aspx (last visited January 25, 2017).

[6] Megan Slack, Consumer Financial Protection Bureau 101: Why We Need a Consumer Watchdog, The White House Blog (Jan. 4, 2012), https://www.whitehouse.gov/blog/2012/01/04/consumer-financial-protection-bureau-101-why-we-need-consumer-watchdog.

[7] CONSUMER FIN. PROT. BUREAU, http://www.consumerfinance.gov/ (last visited Nov. 12, 2016).

[8] Id.

[9] CONSUMER FIN. PROT.BUREAU, Newsroom, http://www.consumerfinance.gov/about-us/newsroom/ (last visited Nov. 12, 2016).

[10] PHH Corp. v. Consumer Fin. Prot. Bureau, 2016 U.S. App. LEXIS 18332, (D.C. Cir. Oct. 11, 2016).

[11]Id.

[12] RECENT LEGISLATION: Administrative Law – Agency Design – Dodd-Frank Act Creates the Consumer Financial Protection Bureau, 124 Harv. L. Rev. 2123, 2127-28 (2011).

[13] Andrew Rudalevige, Is the Consumer Financial Protection Bureau Constitutional? The D.C. Circuit Says No. Here’s Why., WASH. POST (Oct. 19, 2016), https://www.washingtonpost.com/news/monkey-cage/wp/2016/10/19/is-the-consumer-financial-protection-bureau-constitutional-the-d-c-circuit-says-no-heres-why/.

[14] Id.

[15] PHH Corp., 2016 U.S. App. LEXIS 18332.

[16] Id.

[17] Id.

[18] Id.

[19] Rudalevige, supra note 10.

[20] Id.

[21] James Rufus Koren, Trump Administration Could Upend Post-crisis Financial Reforms, Weaken CFPB, L.A. TIMES (Nov. 9, 2016), http://www.latimes.com/business/la-fi-trump-dodd-frank-20161109-story.html.

[22] Rudalevige, supra note 10.

[23] Kate Berry & Ian McKendry, CFPB’s Precarious Future Under Trump, AMERICAN BANKER (Nov. 9, 2016), http://www.americanbanker.com/news/law-regulation/cfpbs-precarious-future-under-trump-1092356-1.html.

[24] PRESS RELEASE, HOUSE FIN. SERV. COMM., Hensarling Statement on CFPB’s Unconstitutional Structure (Oct. 11, 2016).

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