Stepping up their attacks on Elizabeth Warren and the new Consumer Financial Protection Bureau this week, House Republicans painted a picture of an all-powerful agency — Financial Services Chairman Spencer Bachus called it “the most powerful agency that’s ever been created in Washington”– whose director will rule the banking industry by fiat, be accountable to no one, and even determine her own budget.
Many have already pointed out how factually untrue these claims are. What’s also striking about them is how accurately they describe another financial regulator, the Office of the Comptroller of the Currency (OCC). The OCC is the nation’s top dog in charge of overseeing banks. Its powers are vastly broader than those of the CFPB and subject to far less oversight. Yet the OCC is well-liked by many of these very same Republicans, so much so that they went to bat last year to ensure that its authority would not be constrained in the slightest by the Dodd-Frank Act.
The difference between the two agencies is that the OCC sees its mission as protecting, not consumers, but big banks. Over the last two decades, the OCC has used its powers to ensure that the nation’s largest banks don’t have to play by the same rules that govern small community banks, can operate outside the jurisdiction of state attorneys general, and are immune from many consumer protection laws.
Unlike the CFPB, whose rules can be vetoed by the newly created Financial Stability Oversight Council, a panel of nine federal regulatory agencies (including the OCC), the OCC is subject to little in the way of checks and balances. It operates unilaterally and has spent much of the last two decades preempting state laws that big banks don’t like, including rules on credit card disclosures, payday lending, bank fees, and more. Most disastrously, in early 2000s, the OCC overturned numerous state laws that outlawed certain risky and predatory mortgage practices.
Throughout all of this, the OCC has been accountable to no one. When Congress reprimanded the OCC for its “inappropriately aggressive” preemption practices, the agency thumbed its nose and continued to obliterate state laws. When states sought relief through the courts, they ran headlong into a precedent that forces judges to defer to the opinions of the OCC. Nor has there been any accountability to citizens. Between 1995 and 2007, the OCC brought just 13 enforcement actions against banks for consumer protection violations. Even now, consumers in throes of the mortgage foreclosure debacle report that the OCC does not respond to their calls.
As with other major financial regulatory agencies, neither the CFPB’s budget nor the OCC’s are subject to the Congressional appropriations process. What does distinguish the two agencies’ budgets is where the money comes from. The CFPB’s expenses will be paid through a transfer from the Federal Reserve (with its budget capped and subject to annual GAO audits and reports to Congress), while the OCC derives almost all of its funding directly from the very banks it regulates. The largest 20 banks contribute two-thirds of the agency’s revenue.
What makes this set-up problematic is that banks can choose either a state or national charter. By giving nationally chartered banks a green-light to ignore state laws, the OCC has made its charter highly desirable and, indeed, its budget has soared as more banks have switched to a national charter. In other words, preempting consumer protections and running roughshod over state authority has profited both banks and the OCC itself.
All of this goes to show that what’s really at issue in the fight over the CFPB is not how the agency is structured or how much power it will have, but whose interests it serves. As Bachus himself put it recently, “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”