What is the Consumer Financial Protection Bureau?

A real democracy finds bureaucrats and grassroots activists working together to advocate for impacted communities and make sure legislative priorities match the needs of everyday Americans.

According to our guest this week, K. Sabeel Rahman, the intersection of bureaucratic federal agencies and constituencies is one of the pillars of a functioning democracy. This symbiotic relationship has “grassroots organizing on the one hand and a policymaking body where those organizers can actually plug in, bring their ideas and concerns, and demand a response,” Rahman said.

Listen to Mila’s interview with K. Sabeel Rahman here for more:

Rahman is the co-author of Civic Power, a treatise on rebuilding our democracy with impacted communities and American citizens at the helm. Many of the ideas in the book revolve around radically restructuring institutions to give citizens decision-making power, rather than implementing transparency or good governance reform. Our current system does not give citizens direct power in policy-making, and thus is not a true form of democracy. The authors stress the necessity for including affected communities in decision-making on state, local, and federal levels.

The need to democratize Federal agencies seems daunting—many exist in a labyrinthian realm shrouded by complex organizational structures, red tape, and high barriers to entry. According to Rahman, it might not be as hard as we think because a shining example of a democratized agency already exists: the Consumer Financial Protection Bureau (CFPB).

The CFPB rose from the ashes of the 2008 financial crisis as an agency specifically designed to protect consumers against predatory lending schemes and other practices of malfeasance in the financial sector. Officially instituted in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, it soon became one of the most effective agencies in Washington, thanks to its intersectional structure and advocacy mission. According to Rahman in Civic Power, it represented “the most recent and ambitious attempt to forge a brand new federal regulatory in decades.”

How did the CFPB stand apart from past (failed) regulatory bodies? First, it was a consolidated decision-making body. Before 2008, financial regulation was often completed piecemeal, creating a disorganized financial ecosystem ripe for exploitation from enterprising individuals and firms. For instance, mortgage-backed securities and toxic assets—two of the largest contributing factors in the Great Recession—weren’t adequately addressed because of the divisions between federal regulators.

Dodd-Frank remedied this pockmarked regulatory field by creating two new federal agencies: the Financial Stability Oversight Council (FSOC) and the CFPB. The FSOC ensured banks were no longer “too big to fail,” one of the precipitating reasons for the crash and subsequent bailouts. The CFPB aims to prevent moral hazard by ensuring banks or firms weren’t duping American consumers. The CFPB can investigate and punish bad actors as an independent disciplinary body, which creates enhanced accountability in the realm of consumer-facing finance.

Second, the CFPB had deep ties to advocates and American citizens. Instead of acting as a neutral regulator, the CFPB is specifically a consumer advocate. They hold town halls and hearings around the country, working with grassroots organizations and activists to understand the needs of American consumers. They also specifically seek to build relationships with communities adversely impacted by financial misconduct, and they run a complaint database where anyone can report a problem. These outreach arms create a unique “participatory monitoring” function that identifies the most significant issues facing consumers and works with the CFPB’s independent disciplinary body to remedy them.

The CFPB model combines centralized regulatory power with participatory monitoring, dealing with the problems Americans need fixed most desperately. It’s a model that works. Between 2010 and 2017, the CFPB returned more than $12 billion in relief to more than 29 million Americans. The CFPB is also a trusted intermediary for many Americans in financial dealings and analysis, precisely because of its participatory considerations.

Not surprisingly, financial interests, and politicians who support them, hate the CFPB. With Trump in office, the conservative Supreme Court undermined the agency’s independence, and one-time acting director Mick Mulvaney actively sought to destroy the agency, which is now severely handicapped thanks to his destructive reign.

Although the CFPB is currently hobbled by an administration famous for wanton destruction of federal offices and departments, all is not lost. In the event of a Democratic win in November, we have a rare opportunity to rebuild this federal agency—and to use its example of robust regulatory oversight meets participatory monitoring across the board. If more agencies can restructure this way, the federal government will genuinely begin to work for the people.

2010. DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT Congress.

“The Bureau.” Consumer Financial Protection Bureau, www.consumerfinance.gov/about-us/the-bureau/.

Consumer Financial Protection Bureau, www.consumerfinance.gov/.

Consumer Financial Protection Bureau: By the Numbers. Consumer Financial Protection Bureau, files.consumerfinance.gov/f/documents/201701_cfpb_CFPB-By-the-Numbers-Factsheet.pdf.

“Consumer Protection: Why Do Republicans Hate the CFPB so Much?” Los Angeles Times, Los Angeles Times, 23 July 2015, www.latimes.com/business/hiltzik/la-fi-mh-cfpb-republicans-20150723-column.html.

Kilgore, Ed. “Supreme Court Restricts Independence of CFPB, But Doesn’t Kill It.” Intelligencer, Intelligencer, 29 June 2020, nymag.com/intelligencer/2020/06/supreme-court-limits-cfpb-independence-but-doesnt-kill-it.html.

Levintova, Hannah. “Want to Get Hired by the CFPB? Say You Know How to Destroy It.” Mother Jones, 25 June 2019, www.motherjones.com/politics/2019/06/cfpb-political-appointees-resumes-mick-mulvaney/.

Rahman, Kazi Sabeel, and Hollie Russon Gilman. Civic Power: Rebuilding American Democracy in an Era of Crisis. Cambridge University Press, 2019.

Smith, Kelly Anne. “How The Dodd-Frank Act Protects Your Money.” Forbes, Forbes Magazine, 21 Aug. 2020, www.forbes.com/advisor/investing/dodd-frank-act/.

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