A new Supreme Court decision suggests that those seeking reform of the troubled Consumer Financial Protection Bureau should adjust their priorities.
On June 29, the Supreme Court decided Trump v. Slaughter, ruling that the president of the United States may remove a member of the Federal Trade Commission without cause, even when the law provides that commissioners should serve a seven-year term and may be dismissed only for cause. Going forward, each president may remove commissioners likely to block his agenda, meaning the end of stability across administrations for bipartisan commissions.
The Consumer Financial Protection Bureau—headed by a director, not a commission—is already troubled by abrupt changes of direction on policy as well as a tendency to overreach. Reformers urged Congress to replace the bureau’s sole powerful director with a commission. But as the era of stable bipartisan commissions draws to a close, reform of the bureau’s budget process, enhanced cost-benefit analysis, and subpoena powers should become a higher priority.
The bureau’s designers hoped to insulate the agency from financial firms’ influence on legislators by funding it from Fed earnings rather than appropriations. And they wanted the bureau to regulate aggressively and move fast. The bureau’s early supporters noticed that commissions talk things over and compromise—and usually include members skeptical of regulation. Therefore, the bureau was headed by a sole, powerful director.
As incidents of bureau overreach mounted, a deliberative commission structure looked like a good idea. Thus, H.R. 3445, the Bureau of Consumer Financial Protection Commission Act, proposes that the bureau be headed by a bipartisan commission. After Slaughter, however, commissions may no longer be bipartisan, especially when a new administration represents a change in political party. Discussion among commissioners all of one party might still boost the quality of analysis, because a sole director does not benefit from dialogue with peers. But commissions, too, have done more harm than good. The saga of net neutrality rules at the FCC—imposed, removed, and reimposed—shows that a commission was never a guarantor of certainty. Under Slaughter, a commission structure is unlikely to significantly shift the dynamic at the bureau.
Indeed, lawmakers must contend with a new dynamic across all agencies: lawmakers will no longer be able to count on minority commissioners to promote stability. Agencies’ essential duties and limitations on agency power must be set out in detail in the agency’s organic statute. And the laws the agency enforces must avoid ambiguity.
Fortunately, efforts to reform the bureau along these lines are already underway, as it never had a bipartisan commission. Worthwhile proposals before lawmakers at present include:
Funding the bureau from congressional appropriations.
Stipulating that the bureau should conduct more robust cost-benefit analysis.
Limiting the bureau’s tendency to issue poorly justified subpoenas.
Clarifying the bureau’s authority to regulate deceptive and abusive practices.
Abolishing the bureau entirely (stopping fraud is important, but this work could be done by others).
Other ideas should be explored too, including:
Ending the bureau’s supervisory authority. It isn’t needed. The Federal Trade Commission does not need to supervise Target to protect consumers. Consumers complain when mistreated, so consumer protection will not become a systemic financial risk in the same way that inadequate capital reserves might.
Explicitly giving targets of bureau prosecutions the right to a jury trial when punitive fines are sought.
Creating a cadre of administrative law judges independent of the agency and its powerful director—ideally, housing them outside the agency entirely.
Thriving and prosperous markets depend on certain stable rules that establish fundamental property and contract rights. For decades, lawmakers erred in handing administrative agencies broad discretion to mess with markets and ignore the rule of law. The Supreme Court’s decision in Slaughter hands the broad discretionary power of administrative agencies over to the executive branch. And the responsibility for curbing this discretion and ensuring stable foundational rules has shifted back to Congress. Fortunately, reform of the Consumer Financial Protection Bureau along those lines is already underway.
