The CFPB Versus Congressional Appropriators: Round One

In prepared remarks before the 75th anniversary celebration of the Consumers Union on Tuesday, the Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau (CFPB)—Elizabeth Warren— took the opportunity to counter ongoing attacks levied on the new agency from Congressional Republicans who, as Warren says, “are still trying to chip away at its independence.”

Warren’s comments yesterday specifically referenced the escalating efforts by House Republicans’ to strip the CFPB of its independent funding through the Federal Reserve, moves that appear to be the GOP’s most potent tools at increasing Congressional oversight of the CFPB and curbing its wide-ranging regulatory authority over both banks and non-banks.

As signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173) contains provisions intended to insulate the CFPB politically by funding it outside of the Congressionally-approved discretionary spending process. Instead, the CFPB, once fully established on July 21, 2011, will possess a dedicated funding source through a set percentage of the Fed’s operating budget – resulting in an annual budget as high as $450-$500 million, or nearly double the Federal Trade Commission’s (FTC) budget for Fiscal Year 2010.

Last week, Rep. Randy Neugebauer (R-TX), Chairman of the Financial Services Subcommittee on Oversight and Investigations and one of the most ardent CFPB critics on Capitol Hill, introduced H.R.557, the Consumer Financial Protection Oversight Act of 2011, which would remove the CFPB from the Fed and transfer it over to the U.S. Treasury Department. According to Neugebauer, “Given the significant and perhaps over-regulating powers the CFPB has been given by the Obama Administration, Congress must have a say on the appropriation of taxpayer money funding this agency’s operation.”

As shorter-term strategy, House Republicans have also included a provision within H.R.1, the Full Year Continuing Appropriations Act —a must-pass piece of legislation that will fund government operations through FY11—that would limit the initial funding for the CFPB to $80 million, which represents a steep cut from the $134 million the White House requested for the agency’s start-up costs.

However, Warren warned during her Consumer Union remarks that such efforts to weaken the CFPB’s independence would diminish the agency’s ability to perform its regulatory functions.

“Politicizing the funding of bank supervision would be a dangerous precedent, and it would deprive the CFPB of the predictable funding it will need to examine large and powerful banks consistently and to provide a level playing field with their nonbank competitors,” said Warren. “While the banking regulators charged with preserving the safety and soundness of financial institutions and ensuring consumer protection compliance by smaller banks would continue to receive independent funding, the agency in the financial regulatory system with lead responsibility for protecting consumers would face a different set of rules - rules that threaten its independence.”

Although the CFPB funding debate is currently drawn on strictly partisan lines, the issue touches on a larger debate surrounding Congress’s oversight role over federal agencies and its inherent powers over the federal purse. The GOP’s position may appeal to moderate Democratic appropriators –particularly those on the Senate side – who could support a larger Congressional role in the CFPB budget process in order to preserve Congress’s spending prerogatives.

It’s still too early to tell where this debate will go – but one thing is certain: Congressional Republicans are on the attack, and Elizabeth Warren and the Obama administration will be forced into playing defense in the critical days ahead for the CFPB.

HR 557 - Consumer Financial Protection Bureau Funding (PDF)

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