Richard Shelby Can't Make Up His Mind

Republicans haven't been shy about voicing their distaste for the Consumer Financial Protection Bureau. Many opposed the very creation of the new federal regulator created under the Dodd-Frank Act in 2010. Yet no element of the CFPB has quite raised their ire as much as the structure of the agency. Unlike many other federal regulators (SEC, CFTC, FDIC to name a few) CFPB rules are not dictated by a board of commissioners; instead the agency's director has sole discretion on finalizing regulations. Republicans reject this as a sign of too much power in one unelected office. In May 2011, 44 Republican senators penned a letter to President Obama vowing to filibuster any nominee to head the agency unless the CFPB was reformed to mirror other bank regulators. They held true to their word, blocking Richard Cordray's nomination as CFPB director until President Obama used a recess appointment to put Cordray in charge this past January.

Few have been as resistant as Alabama Senator Richard Shelby, the lead Republican on the banking committee. "Everyone supports consumer protection, but we should never entrust a single person with this much power and public money," he said last year. But as Jeff Sovern noted at Consumer Law & Policy Blog yesterday, Shelby wasn't always as strict in his opposition to an agency run by a single director:

during the Senate's consideration of what became the Dodd-Frank Act, Senator Shelby, along with other Republican senators, proposed that the Bureau be headed by—you guessed it—a single director!  Senator Shelby's proposed amendment appears in the Congressional Record of May 5, 2010, at page S3217 and following.

As Sovern writes, there is a key difference between Shelby's amendment and the CFPB's current structure. Shelby and the Republicans would have made the bureau an arm of the FDIC, with proposed CFPB regulations subject to scrutiny by its parent agency. That didn't make it to the final cut. Instead, the CFPB is an independent branch of the regulatory structure. Cordray is free to pass regulations with minimal scrutiny. The Financial Stability Oversight Council—a panel of the major regulators—has the sole ability to strike down CFPB rules, but only when seven of the ten voting members believe a regulation threatens the wider financial system.

That's not enough for Shelby and his Republican colleagues. In a speech before the U.S. Chamber of Congress in late July, Shelby listed restructuring the CFPB to replace the single director with a commission as one of his top legislative priorities for 2013. "Dodd-Frank confers on the Director of the Bureau immense power over the economy, but fails to provide any effective means for holding the Director accountable for his action," he said. His Republican counterparts in the House passed a bill to such an effect in 2011, but it has made no progress in the Democrat-controlled Senate.

Consumer advocates, on the other hand, have been thrilled with the structure, which ensures the CFPB's status as a wholly independent agency. Placing the power of rulemaking in a single director has allowed the CFPB to issue tough rules without the muddling compromise solutions often required by the commission structure. Largely thanks to that configuration, it is more surprising when the CFPB seems to side with the banks over consumer advocates' objections, a dynamic that certainly isn't the norm at many of the other regulatory agencies.