U.S. Sen. Richard Burr, R-N.C., has supported a sustained Republican effort to control the purse strings of the federal consumer watchdog agency that recently fined Wells Fargo $100 million, an effort that law experts say would allow Congress to weaken the agency.
The watchdog agency, known as the Consumer Financial Protection Bureau, or CFPB, was formed primarily on Democratic support under the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the real-estate and financial-sector meltdowns of 2008.
Among its responsibilities, the CFPB “monitors for risks to consumers in the offering or provision of consumer financial products or services,” according to its website. Its powers to safeguard consumers against shady business practices are much stronger than what had been in place, according to Lawrence G. Baxter, a law professor at Duke University.
“There had been consumer protections, but it was not organized,” Baxter said last week.
“The CFPB brought a laserlike focus for consumer protections. Until the CFPB was created, there was no focused consumer protection,” said Baxter, who directs Duke’s Global Financial Markets Center.
Wells Fargo fraud
On Sept. 8, the CFPB and other regulators announced combined fines against Wells Fargo of $185 million, alleging that the bank’s employees opened millions of unauthorized accounts in the name of unsuspecting consumers to meet aggressive sales goals.
Wells Fargo employees opened about 1.5 million deposit accounts and transferred money without authorization. They applied for about 565,000 credit-card accounts without authorization. They issued and activated debit cards without authorization. And they created phony email addresses to enroll consumers in online-banking services, according to the CFPB.
Wells Fargo, based in San Francisco, must pay $100 million to the CFPB, $35 million to the federal Office of the Comptroller of the Currency and $50 million to the city and county of Los Angeles. It was also ordered to pay restitution to customers. Wells Fargo said it has refunded $2.6 million in fees associated with any product that was opened without authorization.
During a hearing on the fraud Tuesday, Republicans and Democrats on the Senate Banking Committee lambasted John Stumpf, the chairman and chief executive of Wells Fargo.
U.S. Sen. Bob Corker, R-Tenn., said it would be malpractice if Wells Fargo did not claw back executives’ compensation. U.S. Sen. Elizabeth Warren, D-Mass., a frequent critic of Wall Street, called for Stumpf and Wells Fargo to be criminally investigated and said that Stumpf had shown “gutless leadership” during the long-running sales misconduct.
In an email to the Winston-Salem Journal, Burr also had harsh words.
“I’m appalled that Wells Fargo took advantage of their customers,” he wrote.
“In today’s hearing, members from both sides of the aisle took the company to task for these illegal sale practices and what we learned they can only be described by one word: fraud,” Burr said.
In the 2010 Dodd-Frank bill, Democrats tried to preserve the consumer protection bureau’s independent role as a watchdog agency by providing a source of financing that would be mostly buffered from the whims of politics, according to Andrew Verstein, a law professor at Wake Forest University.
“It was intended to be independent of politics, to be independent so that it does not have to kowtow to Congress,” Verstein said.
Burr and 37 other Republican senators voted against the Dodd-Frank bill, which passed in 2010 by a vote of 60-39.
Among its provisions, the bill established an operating budget for the CFPB that does not come from congressional appropriations but from a small share of the independently financed Federal Reserve System.
Since the CFPB was formed, Republicans have wanted to change the way it gets its money.
In 2011, U.S. Senate Leader Mitch McConnell of Kentucky said in a letter to President Barack Obama that the CFPB must be reformed before the Senate would consider his nominee for CFPB director.
“We have no doubt that, without proper oversight, the CFPB will only multiply the kind of countless burdensome regulations that are holding our economy back right now, and that it will have countless unintended consequences for individuals and small businesses that constrict credit, stifle growth, and destroy jobs,” McConnell said.
Burr and 43 other Republican senators signed the letter.
On Feb. 1, 2013, in a similar letter signed by Burr and 42 other Republican senators, GOP Senate leaders told Obama again that they would not confirm his nominee until the bureau underwent certain reforms.
Among the reforms that Burr and other senators were requesting in the letter was one that would “subject the bureau to the annual appropriations process, similar to other federal regulators.”
Just a week after the CFPB announced the Wells Fargo penalty, U.S. Sen. David Perdue, R-Ga., introduced a bill on Sept. 13 that would effectively do same thing. Senate Bill 3318 would “subject the Bureau of Consumer Financial Protection to the regular appropriations process, and for other purposes.”
According to Verstein and Baxter, the bill’s aim is to weaken the CFPB.
“Congressional efforts to change that (funding method) are often intended — in this case is intended to bring the CFPB to heel,” Verstein said. Similarly, Baxter said, “That’s the whole reason — prevent the independent funding that the CFPB gets.”
Taylor Holgate, Burr’s press secretary, declined to say whether Burr supports the bill.
“Sen. Burr is reviewing the legislation,” Holgate said in an email. “Our government should have Congressional oversight, per the Constitution. The Defense and Intelligence budgets are all overseen, and the CFPB should be treated equally.”
The Senate ultimately did confirm Obama nominee Richard Cordray on July 16, 2013, as the director of the CFPB. The vote: 66-34. All 34 senators opposed to the nomination were Republican; Burr was among them.
Democrat Deborah Ross — a Raleigh lawyer, former state legislator and former state director of the American Civil Liberties Union who is running against Burr for the Senate seat — said she opposes the bill.
“People should be able to go to their bank and not have to worry about falling victim to fraud and abuse,” Ross said in an email. “But time and again, Richard Burr has gone to bat for big money special interests that take advantage of the public, instead of looking out for working people.”