Director Chopra’s FDIC Power Grab Yet Another Reason to Rein-in the CFPB

In a surprise move last week, a number of members on the board of directors of the Federal Deposit Insurance Corporation (FDIC) announced the approval of a new request for information (RFI) to review the process of approving bank mergers. There was only one small problem: FDIC Chairman Jelena McWilliams says no such document was approved and no legal vote actually took place. This stunning division and blatant power grab by the board against Chairman McWilliams only threatens the legitimacy and credibility of one of the most important bank regulators. So with conflicting statements between the board and the Chair, what’s actually going?

On December 9th, a joint statement was issued by FDIC Board member Martin J. Gruenberg and Rohit Chopra (who is an ex-officio board member as Director of the CFPB), that the FDIC Board of Directors voted to launch a public comment period on updating the FDIC’s regulatory implementation of the Bank Merger Act. Their press release notes the desire to learn more about how the Act should be adjusted in order to ensure a stricter review of mergers and acquisitions among big banks. It should be noted that this press release was posted on the website of the CFPB rather than the website of the FDIC. Further, a letter sent by House Financial Services Committee Chairwoman Maxine Waters (D-CA) urged regulators to impose a moratorium on approving any bank merger over $100 billion for the duration of this public comment period.

Shortly following the release of the joint statement, the FDIC released a separate statement disputing that any action had been approved, stating “there was no valid vote by the Board, and no such request for information and comment has been approved by the agency for publication in the Federal Register.” McWilliams and her FDIC staff say that the agency’s bylaws state that only the chair can set the agenda. The actual policy is a bit murky, and Politico reports this issue may result in litigation to determine who actually sets the agenda: the majority of the Board, or the Chair. Either way, this usurpation upends 88 years of institutional norms.

At the very least this stunt, led by CFPB Director Chopra, was an attempt to circumvent the authority of the chair to achieve their preferred policy outcomes. The three Democrats that sit on the board may not like that a Republican sits as the Chair of the FDIC, but McWilliams was duly nominated and confirmed by the Senate, and that authority should be respected and followed. In our view, there is no justifiable reason for these board members to engage in an illegitimate run-around that would result in the overthrow of the authority of Chair McWilliams. 

The public deserves government agencies that are well functioning, transparent, and fair - and the actions last week by Director Chopra flies in the face of those reasonable principles. Additionally, without the prospect of an independent regulator, businesses - especially banks that make important capital deployment decisions - would not have the certainty to make long-term investments that benefit their customers or their own bottom line. Indeed, a coalition of many state banker associations wrote to the FDIC warning of the potential fallout of this misguided action, writing, “bank deposit insurance is the bedrock of financial stability, and actions that erode or interfere with the functioning of this critical agency create uncertainty and send signals that are harmful to banks, their customers and the U.S financial system.”

While this saga could continue on in the courts, it underscores a more pressing issue that is the rogue, often opaque CFPB. Taxpayers should be concerned that the CFPB is one of Washington's most powerful, yet least accountable agencies of the federal bureaucracy. Since its creation with the enactment of the Dodd-Frank Act, NTU has argued that lawmakers must either eliminate the agency, or enact comprehensive reforms to ensure it is accountable to Congress. Unlike the vast majority of other agencies in government, the Bureau is not directly funded by Congress. Since the CFPB doesn’t need congressional approval to access resources, there is “no power of the purse” to control an agency with significant regulatory power. 

Further, the sole director, described by a federal judge as the “single most powerful official in the entire United States Government,” has far too much authority. Though the Supreme Courtdid rein in the Bureau slightly last year, ruling through a stinging opinion that the President is permitted to fire the CFPB Director, more work remains. For example, instead of an agency headed by a single individual, Congress should instead create a five-person, bipartisan commission as was envisioned in the original drafts of the Dodd-Frank Act. Enacting this structural overhaul would ensure its long-term viability, reaffirm its mission on consumer protection, and promote greater deliberation among those with ideological diverse viewpoints. Perhaps most importantly, the bipartisan commission would be isolated from the political pendulum that occurs at agencies every time a president is elected.

While these two actions would not impact the current drama playing out at the FDIC, it would send a clear message that the Congress is tired of the endless overreach by the CFPB. Ensuring a better functioning regulatory system is an important role of the Congress, and there is much improvement to go around. But when it comes to low hanging reforms, the CFPB tops the list.