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Some Reflections on the "Big Club Behind the Door"

posted by Susan Block-Lieb

Autonomous administrative agencies are anathema to certain sorts of lawmakers, e.g., those who think that we are always better off with less regulation.  Recent legislation – H.R. 3193 – passed the House last week looking to make the Bureau of Consumer Financial Protection more accountable.  Yesterday I posted a quick blog on this bill on Credit Slips, but want to explore the issue a little more deeply today from the perspective of positive political theory (“PPT”).

PPT theorists note that congressional efforts to constrain administrative agency authority occur at two points in time: first, ex ante, when Congress is designing the agency and, second, ex post, after the agency already exists.  H.R. 3193 looks to redesign the CFPB but it is an ex post, not ex ante, effort to constrain the CFPB’s authority.  And this makes a lot of difference.

Ex post congressional reaction to an agency works through “reward-and-sanction mechanisms” that depend on “the law of anticipated reactions.” 

One mechanism that Congress possesses is “the big club behind the door,” that is, Congress can threaten to eliminate an agency altogether or it can threaten to repeal regulation promulgated by the agency or the like.  Sound familiar?  H.R. 3193 doesn’t look to close the CFPB altogether (although bills of this sort were introduced in earlier Congresses), but its proposals to replace the Bureau’s single Director with a panel of five bipartisan commissioners and to alter the standard for regulatory review by the Financial Stability Oversight Council certainly look to slow down the CFPB’s regulatory progress.

Generally, Congress needn’t threaten to close down an agency to raise credible threats of reprisal; it might instead “make life miserable” for the bureaucrats in an agency by requiring their attendance at time-consuming hearings where question after question is posed in a public setting or, depending on how the agency has been set up, by reducing the agency’s budget or prohibit their use of funds for specified purposes.  Dodd-Frank made it more difficult for Congress to make like miserable for the fledgling agency, however; since the CFPB is situated as a Bureau within the Federal Reserve and funded independent of Congress’s purse strings, Congress can’t directly affect the Bureau’s budget or spending.  While Congress has repeatedly hauled Richard Cordray (and before him, Consumer Czar Elizabeth Warren) before it for multiple hearings to report on the regulatory actions and conduct of the CFPB, these hearings are more like badminton than rugby matches.

Regardless of how they work, PPT theorists agree that Congress’s influence is much more limited after an agency has been created. Theorists’ views on the ineffectiveness of ex post threats follow from a simple constitutional insight – Congress’s ability to repeal administrative regulation is complicated by the separation of legislative powers among the House of Representatives, the Senate and the President.  Because all three legislative powers must agree to legislation, an administrative agency may be relatively unconstrained so long as it does not exceed certain political limits. Because legislative enactment requires approval of the majority of members of the House of Representatives and Senate, as well as the President’s failure to veto the bill, an agency need only convince a single “veto player” who is happy enough to sustain the agency’s policy against an override or other form of punishment.

But the CFPB differs from other agencies in how it is structured.  As a result, Republicans may well hold an important “big club” up their sleeve, although one they will have to wait patiently to use.  The curious thing about the design of the CFPB is that it’s single-director design means that every 5 years the President holds the power to change things up dramatically within the Bureau.  While constitutional checks and balances mean that legislative repeal is often held back by a single “veto player” among the three branches of government, administrative repeal of CFPB initiated regulations might not be all that difficult to accomplish through regulation promulgated by a subsequent Director. 

Cordray’s successor might easily reverse regulations promulgated by the CFPB.  

Recognizing the possibility of regulatory repeal might temper the CFPB’s agenda for reform, much in the same way that anticipation of legislative repeal might temper other agency's actions.  But the horizon for regulatory repeal is still a distant one.  Richard Cordray will remain the CFPB’s Director for more than four years. 

Republicans’ obstruction of Cordray’s appointment as Director of the CFPB until July 2013 means that Cordray cannot be replaced as Director until July 2018, more than 18 months after the next President of the United States is sworn into office.  And if the next President is a Democrat, then the next Director of the CFPB would be appointed to that position for another 5year term – that is, July 2023. (And don’t worry about Republicans really digging in their heels on the appointment of the Bureau’s second director, since under Dodd-Frank Cordray would retains his position until his replacement were appointment: there would be no advantage to this sort of foot-dragging.)  Thus, if a Republican President were elected in 2020, that president couldn’t appoint a new director for several years.  Well, you get the picture.

What does this all mean for regulatory strategy inside the Beltway?  Only time will tell.


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