Last month the Washington D.C. Court of Appeals ruled that the structure of the Consumer Financial Protection Bureau (CFPB), the brainchild of Senator Elizabeth Warren (D-Mass.), was unconstitutional. Until this ruling the CFPB was able to act independently and impose dozens of burdensome regulations upon small businesses and American consumers with no oversight. This ruling not only strips the agency of its autonomy by making it an agency within the executive branch, but it also subjects the CFPB to extensive oversight.

In the aftermath of this decision Representative Jeb Hensarling (R-Texas), Chairman of the House Committee on Financial Services, sent a letter to CFPB director Richard Cordray, notifying him that this ruling requires the agency to comply with all executive orders. Most importantly the CFPB must now follow orders requiring agencies to “ensure the benefits of their proposed regulations outweigh the costs”.

Specifically, the CFPB will now have to adhere to Executive Order 12866, issued by President Clinton in 1993, which mandates federal agencies “promulgate only such regulations as are required by law…or made necessary by compelling public need.” The order sets out basic elements agencies must consider when issuing rules, which most importantly include an evaluation of the benefits and costs of the proposed rules and identifiable alternatives.

Without oversight the CFPB was able to pass new rules and regulations affecting millions of Americans at a rate 2.5 times faster than any other government agency. Some of these rules not only made it harder for Americans to access credit, but also resulted in over $2.5 billion in costs. In the 5 years since the CFPB was created it has issued nearly 50 rules, each harming numerous Americans and small business.  

The court’s decision ensures more accountability and transparency from an agency that enjoyed “significantly more unilateral power than any single member of any other independent agency”. By forcing it to adhere to executive orders, the agency must now ensure that any future rules benefit the American people instead of burdening them as it has in the past. This is a critical first step in reforming the regulatory regime that bureaucrats in Washington have imposed upon the American people for nearly a decade. 


Photo Credit: Consumer Financial Protection Bureau