Jan 31 2012

Shelby: CFPB Operating Behind Facade of Accountability

U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on the Consumer Financial Protection Bureau.

Excerpts of Shelby’s statement are immediately below in bold, followed by the full text of his prepared remarks:

“As I have said many times, things are not getting better, just bigger and more unaccountable.  In fact, our financial regulators have become bureaucracies that are now too big to oversee and it is only getting worse under Democrat rule.

“Our financial regulators now resemble the financial firms they were created to regulate.  The Consumer Bureau is only the most recent iteration of the same problem.”  

Statement of Senator Richard C. Shelby

Committee on Banking, Housing and Urban Affairs

January 31, 2012

 Thank you, Mr. Chairman.

“Today, the Committee will hear from Richard Cordray, the Director of the Bureau of Consumer Financial Protection.

“Since the Bureau was first proposed, I have expressed my grave concerns about its lack of accountability.  I did not think then and I still maintain that it is inconsistent with our Constitutional values to have so much power vested in the hands of one bureaucrat without adequate supervision by the elected-representatives of the American people.

“Nevertheless, the Dodd-Frank Act intentionally designed the Bureau to be free of even the most basic checks and balances.

“Unfortunately, the President has now circumvented one of the only remaining checks with his recess appointment of Mr. Cordray.  I suspect that the Supreme Court will ultimately decide the Constitutionality of the President’s action.  Until then, Mr. Cordray has indicated that he will exercise the full authorities of the Bureau.

“Because of the structure of the Bureau, this means Mr. Cordray will have unfettered power over the operation of the Bureau.  His decisions alone will determine how the Bureau approaches its work.  If he so chooses, he does not have to answer to anyone.  This is not a choice any bureaucrat should have. 

“Since his appointment, Mr. Cordray has indicated that he intends to proceed cautiously and prudently when he exercises his authority.  The real test, however, will be whether this caution finds its way into the Bureau’s actions. Unfortunately, the Bureau’s early history is not encouraging.

“Over the past year, actions taken by the Bureau have repeatedly been inconsistent with the promises of its leaders.  For example, under Dodd-Frank, the Bureau is required to convene panels of small businesses to discuss the impact of proposed regulations.  Mr. Cordray himself has stated that the Bureau would convene these small business panels, and I quote, “not just because the law tells us to do so, but because we recognize that it will help us do our work better.”

“Since its inception, however, the Bureau has yet to convene a single small business panel despite having issued multiple rules.  Moreover, the Bureau has indicated that it has no plans to convene these panels for some of its most important rulemakings, including rules on mortgage underwriting standards.  Similarly, officials at the Bureau have said that it will comply with the Administrative Procedures Act.  They have even pointed to the APA as one of the checks on the Bureau’s authority.

“Yet, the Bureau has repeatedly evaded the intent of the APA by issuing “interim final rules” without asking for public comment before the rules become effective.  Consequently, the Bureau has been able to impose costly regulations on the American economy without providing the American people with any opportunity for comment.

“Listening to the rhetoric coming from the Bureau’s leadership, one would think that the Bureau would have gone out of its way to actively seek public comment on its rules.  In a speech last year, the Bureau’s Deputy Director outlined how the Bureau would approach its work.

“He stated that:

     “The Bureau will invite public input to . . . provide a fact base to help the Bureau evaluate the costs, benefits, and impacts of those rules, and to suggest alternatives.”

“He also stressed that the Bureau was “going to be fact-based, pragmatic and deliberative.”

“The Bureau’s recent rulemaking process suggests that its officials like to give the appearance of listening to the public, but really believe that the Bureau knows what is best without such public interference.  Moreover, it suggests that the Bureau’s own agenda will not be impeded by procedures or the need to collect facts and public comments.  The Bureau’s recent rule on remittance transfers provides another example of the divergence between the Bureau’s rhetoric and its actual operation.

“The leadership of the Bureau has said that it will seek to “make regulations more effective at achieving intended benefits for consumers while lowering costs for lenders.”  The Bureau’s remittance transfers rule, however, suggest that lowering costs is not high on its priorities.  The primary purpose of the rule is to lower the costs of remittances.

“Yet, the Bureau’s own analysis reveals that compliance with this rule will require more than 7.6 million hours.  That means more than 3,800 full-time employees will be required to work on compliance for this single rule.  Rather than conduct a cost-benefit analysis to determine if this rule is justified, the Bureau has indicated that it will impose the rule and examine its impact after the fact.

“Ironically, we were told that the Bureau would be a “data-driven agency” where research was “core” to its work.  In contrast, the Bureau’s remittance transfer rule suggests that when it comes to basing its rules on a thorough examination of facts and data, the Bureau isn’t all that interested in living up to its own rhetoric.

“Early last year, 44 of my colleagues and I sent a letter to the President stating that we would refrain from considering the nomination of any person to be the Bureau’s first Director  until certain changes were made to the Bureau’s structure, not its authorities.  During the September hearing on Mr. Cordray’s nomination, I stated that I believed that these changes would help to preserve the system of checks and balances embodied in our Constitution.

“Mr. Cordray’s recess appointment has shown, however, that the President isn’t much interested in any Constitutional checks on his power.  Unfortunately, my Democrat colleagues seem to share the same opinion.

“The Bureau is budgeted to receive a total of $329 million in funds from the Federal Reserve Board this year.  This could grow to well over a half a billion dollars as early as next year.  By design, these payments are made directly to the Bureau without any oversight through the congressional appropriations process.

“It is also my understanding that the Bureau has already hired 800 people, and it has been reported that the Bureau hopes to hire as many as 1,000 people by the end of this year, some making more than $225,000 per year.  How have my Democrat colleagues in the Senate responded to this incredible bureaucratic expansion?  They have resisted every Republican effort to make the Bureau more accountable to the American people by changing its structure.  To make things worse, they have also cut this Committee’s funding by 25% making it even more difficult to oversee these massive bureaucracies that are growing in power and size under Dodd-Frank.

“As I have said many times, things are not getting better, just bigger and more unaccountable.  In fact, our financial regulators have become bureaucracies that are now too big to oversee and it is only getting worse under Democrat rule.

“Our financial regulators now resemble the financial firms they were created to regulate.  The Consumer Bureau is only the most recent iteration of the same problem.  It tells the public one thing, but delivers another.  It evades the law by relying on technicalities and small print.  It ignores consumers, while advancing its own special interests.  And it operates behind a facade of accountability, but, in fact, exercises unchecked power in the marketplace.

“Just as financial firms need to be held accountable, so do financial regulators.

“I believe that the Bureau’s short history has only made the case for reform even more compelling. 

“Thank you, Mr. Chairman.”