It has been a tough week for both the Consumer Financial Protection Bureau (CFPB) and for the Dodd-Frank Wall Street Reform and Consumer Protection Act.
On Tuesday, the CFPB faced some tough questions as to the constitutionality of its structure from a panel of three Republican judges in the opening arguments for the PHH Corp. v. CFPB trial. Also on Tuesday, the Government Accountability Office (GAO) issued a report stating that a lack of transparency on the part of the Fed and FDIC in determining whether the “living wills” submitted by banks required by Dodd-Frank are credible “could undermine public and market confidence.”
This came after Dodd-Frank suffered a setback in late March when a judge ordered the “systemically important” designation to be removed from insurance provider MetLife. The Financial Services Oversight Committee (FSOC), created by Dodd-Frank and comprised of the heads of nine federal government regulatory agencies and one independent member, designated MetLife as a nonbank systemically important institution in December 2014.
On Wednesday, the House Financial Services Committee passed a bill to repeal Dodd-Frank’s bailout fund for large, complex financial institutions. At the same time, the Committee passed a bill to put the CFPB’s spending on a budget in an attempt to make the Bureau more accountable to taxpayers.
H.R. 1486, known as the “Taking Account of Bureaucrats’ Spending Act of 2015,” passed in the Committee by a vote of 33 to 20. H.R. 4894, the bill to repeal title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed by a vote of 34 to 20.
“When it comes to the resolution of these large, complex financial institutions, should we have bailouts or should we have bankruptcy?” Committee Chairman Jeb Hensarling said. “I think most people, particularly on the Republican side of the aisle, believe there should be bankruptcy. No sweetheart deals, no more AIG deals where foreign creditors get 100 cents on the dollar; the bankruptcy process is far superior. There is no one financial institution that should be deemed ‘too big to fail’ and others ‘too small to matter.’”
H.R. 4894, sponsored by Rep. Lynn Westmoreland (R-Georgia), repeals Dodd-Frank’s “Orderly Liquidation Authority” that gives the FDIC authority to borrow money from Treasury to lend to a failing firm, purchase its assets, guarantee its obligations, and pay off creditors. Under Dodd-Frank, the FDIC has authority to potentially borrow trillions of dollars for these purposes.
Since 2009, when the financial reform debate began and when Dodd-Frank was still being drafted, Republicans have called for large, complex financial institutions to be resolved under the Bankruptcy Code rather than through Dodd-Frank. Earlier this week, the House passed the Financial Institution Bankruptcy Act with bipartisan support in order to create a new bankruptcy chapter for failing banks, according to the House Financial Services Committee.
H.R. 1486, sponsored by Rep. Andy Barr (R-Kentucky), aims at making the CFPB more accountable to taxpayers and ensures effective oversight of the Bureau by Congress. The Bureau currently is not subject to the normal checks of the budget appropriations process, and as a result, Congress cannot control how much the Bureau spends, according to the Committee.
The bill authorizes an annual budget of $485.1 million for the CFPB, which is the same amount that CFPB Director Richard Cordray said was necessary to fund the Bureau for the most recent fiscal year, according to the Committee.
“Every government agency should be accountable to the elected representatives of ‘We the People’ and the CFPB should not be an exception to that rule,” Hensarling said. “We have the Pentagon which is on budget. We have the Justice Department which is on budget. There is certainly no greater duty we have than to provide for the common defense, and we do not let the Pentagon write its own budget. We should not let the CFPB write its own budget. It is a base matter of congressional oversight and of Article I authority.”
The two bills may have a difficult time becoming law, however. They will need bipartisan support to override a certain presidential veto if they make it to the White House while Obama is still president. Sen. Elizabeth Warren (D-Massachusetts), the main architect of the CFPB and a fierce Dodd-Frank supporter, said last month that “If Wall Street and their buddies in the Republican party want to launch an assault on financial regulations and they want to try to roll back Dodd-Frank, all I can say is, let’s have that fight. I’m ready. You can make it with words or anything else you want, but I am not backing down.”