Trump takes on CFPB, a regulatory agency set up by Elizabeth Warren so no Republican could ever work for it

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Published by: Dan Calabrese on Monday February 06th, 2017

The tyranny of the administrative state.

The Consumer Financial Protection Bureau is one of those things that sounds purely like the government helping out the sainted little guy against threats from the powerful and the predatory. And there's a lot of danger in that. The CFPB was created by Democrats as part of the passage of Dodd-Frank in 2010, and Obama appointed left-wing stalwart Richard Cordray to wield the agency's considerable power.

Now Trump believes, correctly, that it's time to rein Cordray and the CFPB in, which the political class sees as a case of evil Republicans undercutting the rights of the common folk:

With Friday's signing of a new executive order by President Trump, the alternating sides face a pivotal showdown over one of the signature safeguards enacted under the Dodd-Frank Wall Street reform act after the 2008 financial crisis.

The barely two-page order never mentions the CFPB.

However, it directs the Treasury secretary to examine the extent to which current laws, regulations, and oversight requirements help promote six core principles — including restoring "public accountability within federal financial regulatory agencies," and "empowering Americans to make independent financial decisions and informed choices."

CFPB supporters and critics both expect those provisions will set the Republican-controlled congressional stage for restructuring the regulator's leadership from a single director loosely accountable to the president and only removable for good cause to a bipartisan board. For the first time, Congress could also win authority to set the CFPB's annual budget.

Such changes have repeatedly been urged by Rep. Jeb Hensarling, R-Texas, who has used his chairmanship of the House Committee on Financial Services to rail against what he's characterized as the CFPB's answerable-to-no-one makeup, and the virtually unchecked authority of Richard Cordray, the regulator's director.

I should say the political class pretends to see it that way. The CFPB is really about concentrating unaccountable power in the hands of the administrative state. And when the CFPB was established and staffed, thosee leading the effort - chief among them Elizabeth Warren - made a point of making it almost impossible for anyone who wasn't a Democrat to work for the agency. Ronald L. Rubin, who briefly served the agency in a legal role, explained in National Review how it worked:

Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.

Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.

Warren, who had hoped to be the CFPB’s first director, led the one-year agency-building process. She chose loyal Democrats to be her senior deputies; they hired like-minded middle managers, who in turn screened lower-level job seekers. It was too risky for interviewers to discuss politics, so mistakes were possible. I was one of them.

As a Jewish graduate of a liberal college living on Manhattan’s Upper West Side, I fit the stereotypical Democratic profile. In fact, my primary influences were my business-school professors at the University of Chicago, the epicenter of free-market capitalism. I supported the agency Warren proposed in 2007 for the same reason I had worked at the Securities and Exchange Commission — accurate information improves markets’ efficiency. I had not read important sentences at the bottom of the Dodd-Frank Act’s thousands of lines of text.

In March of 2011, I interviewed with Richard Cordray, the pre-operational agency’s new enforcement chief. By May, I had surrendered my prized rent-stabilized apartment and moved to Washington to be the CFPB’s 13th enforcement attorney.

I would not have been so lucky two months later. As screening techniques improved, Republicans were more easily identified and rejected. Political discrimination was not necessarily illegal, but attempts to hide it invited prohibited race, gender, religion, and age discrimination. In retrospect, the Office of Enforcement’s hiring process, which was typical for the bureau, violated more laws than a bar-exam hypothetical. As screening techniques improved, Republicans were more easily identified and rejected.

Job seekers interviewed with two pairs of attorneys and most senior managers. All Office of Enforcement employees were invited to attend the weekly hiring meetings, where interviewers summarized the applicants. Any attendee could voice an opinion before each candidate’s verdict was rendered; even a single strong objection was usually fatal. Note taking was strictly forbidden, and interviewers destroyed their records after the meetings. I never missed one.

Clear verbal and non-verbal signals quickly emerged. The most common, “I don’t think he believes in the mission” was code for “he might not be a Democrat.” At one meeting, Kent Markus, a former Clinton-administration lawyer who had joined the bureau as Cordray’s deputy, remarked that an applicant under consideration “sounds like a good liberal to me.” After a few seconds of nervous laughter and eye contact around the room, Markus recognized his slip. “I didn’t say that,” he awkwardly joked. The episode so unnerved one attorney that he never attended another hiring meeting.

So you see how the Democrats set this whole thing up: First, you pass legislation that creates an agency with virtually unchecked power. Because it needs staff but started with none, you put people in charge of the hiring process who will make sure only "good liberals" who "support the mission" can be hired. That way, even when the time comes for a Republican president to nominate a new director, the liberal employees (i.e. all the employees) will be able to use their numbers and their familiarity with the agency's operations to undermine any new priorities of a new Republican president.

And let there be no doubt, that's exactly what Cordray and his staff intend to do to Trump.

GDP growth for Obama's final year? A measly 1.6 percent

The fact that Congress doesn't even set the CFPB's budget, and that the president can't fire the director without "cause" (whatever that means), speaks to how easily this agency can get completely out of control - and no one can do anything about it. That's by design. The principle of the Democrats is that regardless of whether the Democrats or the Republicans control the executive branch, the Democrats control the executive branch. They may not hold the presidency, but at the ground level, the arms and legs that make the executive branch go - or not go - will always belong to the left.

The CFPB was designed to operate according to this principle, and now the new Republican administration has to grapple with an agency whose entire raison d'etre is to undercut it. There has been some whispering about getting rid of civil service protections for some federal employees. The political class would have a cow if that happened, but when you set up immovable entities like the CFPB, you leave a Republican president and Congress with little choice but to upset the status quo.

Dan's new novel, BACKSTOP, is a story of spiritual warfare and baseball. Download it from Amazon here!