Richard Cordray asked Federal Reserve Chair Janet Yellen for $217 million in October—his last such request as director of the Consumer Financial Protection Bureau. Last week Mr. Cordray’s acting successor, Mick Mulvaney, made his first quarterly funding request: “$0.” What a difference a few months make.
Established in the wake of the 2008 financial crisis according to now-Sen. Elizabeth Warren’s vision, the CFPB ran wild under Mr. Cordray’s leadership—issuing reams of punishing regulations and conducting endless fishing expeditions, sometimes into industries Congress had specifically excluded from its jurisdiction.
This was possible because the bureau was designed to be insulated from accountability. It is led by a single director, whom the president cannot fire except for cause, and funded by the Fed, so that it need not justify its actions and funding needs to Congress.
Whether this arrangement is constitutional is an open question, currently pending in the U.S. Circuit Court of Appeals for the District of Columbia. But for now, as that court’s Judge Brett Kavanaugh has observed, it renders the CFPB director “the single most powerful official in the entire United States Government” (with the possible exception of the president).
That power now belongs to Mr. Mulvaney—and if Mr. Cordray had no constraints in his overreach, his successor is equally free to rein it in. Mr. Mulvaney has already frozen new regulations as well as regulatory “guidance,” which agencies often treat as carrying the force of law. But with Mr. Cordray’s minions burrowed into the bureau’s 1,600-person workforce, tweaks to rules and enforcement policies will only go so far.
The linchpin for fast and effective deregulation is substantially defunding the agency and clearing out its ranks in the process. Mr. Mulvaney’s request of zip from Ms. Yellen is a good first step.
The statute creating the bureau sets its budget at “the amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau,” and no one is authorized to second-guess that determination. That supports Mr. Mulvaney’s decision to forgo additional funding this quarter and draw down the unauthorized $177 million “reserve fund” Mr. Cordray built up during his tenure.
The language that authorizes Mr. Mulvaney to slash funding applies equally to spending—after all, determining what is “reasonably necessary” to do the bureau’s business implies determining what that business is. When Congress has made a lump-sum appropriation to an agency without mandates for spending on particular items, the courts have viewed that as authorization for the agency to choose how to spend the funds. The CFPB’s funding mechanism confers even broader discretion on the director given that he controls revenue as well.
It is possible that a court would require funding for the CFPB’s statutory obligations. The statute requires, for example, that the bureau establish an office focused on “traditionally underserved consumers and communities.” That mandate suggests that the director cannot zero out the office’s budget. But it says nothing about how much funding is required or whether assistance to underserved communities is best organized at the state level, with a skeleton crew at the CFPB playing a coordinating role. There is no standard by which a court could review those decisions.
The bottom line is that all of the CFPB’s discretionary spending is at the pleasure of the director, and the bulk of its $630 million budget is discretionary. That gives Mr. Mulvaney the power to reshape the agency radically—and resize it—in short order. And by exerting his powers to their fullest, perhaps Mr. Mulvaney will be able to convince even congressional Democrats that those powers are excessive and ought to be restrained.
Messrs. Rivkin and Grossman practice appellate and constitutional law in Washington.