Assertive Republican Oversight Await Ambitious CFPB Policy Agenda

Heightened Congressional scrutiny and a wave of document requests await the Consumer Financial Protection Bureau when Republicans take control of the House in January.

But the CFPB’s operational independence, alignment with the Biden administration’s policy orientation, and familiarity in dealing with a Republican-led House would largely enable the financial regulator to continue to pursue substantive policymaking, agency watchers say.

CFPB Director Rohit Chopra “has his priorities and increased oversight is not likely to dissuade him from pursuing them,” said Rachel Rodman, a partner at Cadwalader Wickersham & Taft LLP.

Republicans eked out a slim majority in the Nov. 8 midterm elections. Rep. Patrick McHenry (R-NC), who’s already hinted at stricter CFPB oversight, now gets the gavel as House Financial Services Committee chairman.

Several CFPB policies will likely be the committee’s focus, including the agency’s application of its unfair deceptive and abusive acts and practices (UDAAP) enforcement standard to bank accounts and other non-credit products, as well as potentially restricting credit card and other fees, according to Rachel Rodman, a partner at Cadwalader Wickersham & Taft LLP.

The CFPB has operated in the face of a Republican Congress in the past, and the agency’s staff will know how to handle inquiries, agency watchers say.

“Effective congressional oversight can affect an agency’s cost-benefit analysis for certain activities,” said Michael Gordon, a partner at Ballard Spahr LLP.

The anticipated boost in scrutiny also comes at a time of renewed Constitutional questions over the agency’s funding source. The CFPB asked the US Supreme Court this week to review an appeals court’s decision that rendered the financial regulator‘s independent funding unconstitutional.

The CFPB derives its funding through the Federal Reserve rather than the congressional appropriations. The funding process violated the Constitution, a three-judge panel of the Fifth Circuit ruled Oct. 19 in Community Financial Services Association of America v. CFPB.

‘A Lot of Red Meat’

The CFPB has long been a target for Republicans. The House Financial Services Committee’s last Republican chairman, Jeb Hensarling of Texas, famously battled with Richard Cordray, the CFPB’s first director, over document requests and held hearings on alleged racial discrimination inside the bureau, among other issues.

The CFPB can expect a similar flurry of document requests, said Aaron Cutler, the leader of Hogan Lovells LLP’s government relations and public affairs practice.

Chopra also can expect for a less hospitable greeting at his required bi-annual appearances before the committee, said Cutler, who was previously a senior advisor to former House Majority Leader Eric Cantor (R-Va.).

“There’s a lot of red meat there for Republicans to go after,” he said.

Apart from regulatory and enforcement policies, the agency can also expect to hear from House Republicans about its fellowship program, which Republicans say may allow high-level employees to avoid filing financial disclosures.

Another issue that may surface is Chopra’s role in a leadership fight at the Federal Deposit Insurance Corp. that resulted in the resignation of former FDIC Chairman Jelena McWilliams, a Trump appointee.

Despite the CFPB’s determination to stay on course, the agency may have to weigh which priorities it chooses to pursue, said Gordon, a former senior investigator for House Democrats who now defends companies and individuals in congressional inquiries.

Agency Shield

But other agencies, particularly the Securities and Exchange Commission, may take more of the House Financial Services Committee’s attention, Cutler added.

Republican members have repeatedly called on the committee’s current chairman, Rep. Maxine Waters (D-Calif.), to call SEC Chairman Gary Gensler up to testify.

He has yet to do so.

“We will see Chair Gensler more in the hot seat than Director Chopra,” said Todd Phillips, a progressive policy advocate and former FDIC official.

Republicans will want to dive deep on issues like the SEC’s climate disclosure proposals, as well as other environmental, social and governance initiatives and cryptocurrency regulations, according to letters Republicans have sent to Gensler in recent months.

Crypto is likely to take up a fair amount of the committee’s time in the coming Congress, particularly with the recent blowup of exchange FTX.com and other cryptocurrency firms. McHenry has also been working on bipartisan stablecoin legislation with Waters.

However, with a slim House Republican majority, a Democratic hold on the Senate and President Joe Biden in the White House, few expect much financial services legislation to get signed into law.

“There’s only so much legislation you can do” in divided government, Cutler said.

Funding Fight?

One potential piece of legislation that may require a floor vote involves a potentially new funding mechanism for the CFPB.

The Fifth Circuit’s ruling may get taken up by the Supreme Court. A ruling against the CFPB at the high court could force Congress and the White House to figure out a new way to pay the CFPB’s bills through the appropriations process.

That will likely be tricky, given the antipathy for the CFPB among many Republicans and a desire among Democrats to preserve its independence.

“If the Supreme Court were to affirm the Fifth Circuit decision striking the bureau’s funding mechanism, Congressional oversight could have a much bigger impact on the bureau’s operations,” Gordon said.