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Banks wanted America's consumer watchdog to change — but not like this

Ylan Mui

Banks have been pushing for changes to America's consumer watchdog agency ever since it was established in the aftermath of the financial crisis. Now, they might get more than they bargained for.

A draft bill from Rep. Jeb Hensarling , R-Texas, would fundamentally alter the structure of the Consumer Financial Protection Bureau by allowing the president to fire the agency's director, according to a document obtained by CNBC. Currently, the director is a political appointee but can only be removed in extreme circumstances.


"We have set up, basically, a dictator," Hensarling said in an interview Thursday on CNBC. "I'm not offended by having consumer financial protection in one agency, but not an agency that is unaccountable to the president."

Banks say the proposal goes too far.

Instead of a director who can be fired, industry groups have called for a bipartisan five-member commission to lead the CFPB. The structure mirrors that of other regulatory agencies — such as the Securities and Exchange Commission and the Federal Communications Commission — and industry groups are now hoping that Hensarling will scale back his plans.

"Our legislative, statutory policy position has always been for a broader five-member bipartisan commission rather than a single director," said Paul Merski, executive vice president at the Independent Community Bankers of America. "When you have a single director, depending on who is in power and who appoints that single director, you could have the regulatory pendulum swinging back and forth dramatically."


In other words, a regulation-slashing director installed by President Donald Trump might be welcomed by the industry in the short term, but it all could be reversed after the next presidential election. In the long run, banks say they prefer the relative stability of a commission.

Four key industry groups — the Consumer Bankers Association, the Credit Union National Association, the Independent Community Bankers of America and the National Association of Federal Credit Unions — outlined that goal in a letter to Senate leadership late last year.

"This agency is very powerful in that it regulates a huge influential industry," said Elizabeth Eurgubian, senior counsel at the Credit Union National Association. "Several perspectives are needed so that rules and enforcement actions are thought out and good policy can take place."


Dueling proposals

An earlier version of Hensarling's bill, known as the Financial Choice Act, did adopt banks' recommendation of a commission. But with Republicans now in control of both chambers of Congress, Hensarling has a better chance of passing even more dramatic changes.

A spokesman for his office said the legislation is slated to be introduced in a matter of weeks. It is unclear whether it has been updated since CNBC reviewed the changes earlier this month.

Hensarling's proposals carry particular weight because he is chairman of the House Financial Services Committee.

Other bills introduced in the Senate recently have also taken aim at the CFPB. Sen. David Perdue , R-Ga., and 11 of his colleagues have proposed subjecting the agency to the appropriations process; the CFPB is currently funded through the Federal Reserve. Another bill from Sen. Ted Cruz , R-Texas, would repeal the agency altogether.

"It was intentionally created to protect it from political interference and the political allies of finance killing it," said Dennis Kelleher, chief executive of Better Markets. "We knew that an effective consumer protection agency would immediately become the number one priority target of finance."

Doing away with the CFPB could prove dicey despite GOP control of Congress.

A D.C. court said Thursday it would give a second look at a lawsuit that argues the agency's structure is unconstitutional. White House attempts to remove the CFPB's current director, Richard Cordray, before his term ends next year are also sure to face legal challenges.

Republicans "have to stop pretending their attacks on Director Cordray and the agency are about anything other than carrying water for big banks, payday lenders and debt collectors," said Sen. Elizabeth Warren , D-Mass., who is credited with setting up the agency.

With consumer advocates in full alarm and the banking industry missing its target, neither side is entirely happy right now in the fight over the CFPB.