Do Banking Regulations Need Reform?

Commentary & Community

Do Banking Regulations Need Reform?


In the wake of the Wells Fargo scandal, banking regulation has become a top issue in Pennsylvania’s Senate race. Senator Pat Toomey, who sits on the Senate Banking Committee, plays a large role in setting the rules governing how banks handle our money and overseeing regulations on banks. His challenger, Katie McGinty, has been denouncing the senator’s actions in these areas.


One of the key points of disagreement is the Consumer Financial Protection Bureau (CFPB), an agency established by the Dodd-Frank law passed in the wake of the Great Recession. According to McGinty, “Toomey has been working overtime to bust not the banks but the protection bureau. I think those priorities are a little upside-down, and I don't think we're going to take it anymore.”


The basis for this attack is Senator Toomey’s support for changing the way the CFPB operates. He has backed amendments and legislation that would change the funding mechanism for the agency. Currently, the CFPB receives funding through an independent account in the Federal Reserve. Other federal agencies are funded through the appropriations process, whereby Congress and the president allocate money on a yearly basis for their operations. The CFPB is exempt from this process, and Congress has no authority to review the budget set by the CFPB’s director.


Senator Toomey would like the CFPB to be treated like any other federal agency – Congress and the president set the agency’s budget. The Heritage Foundation points out that “the bureau’s independence from congressional appropriations or budgetary review prevents Congress from exercising its key means of oversight: the power of the purse.”  Critics of congressional control of agency funding say that this is a means to weaken the agency: “This would not only give Republicans an opportunity to slash the bureau's funding, but to leverage its budgeting control to pressure the agency against cracking down on lenders.”


The structure of the CFPB has also come under attack by Senator Toomey. He would like to replace the director of the agency with a bipartisan board to govern it.


As you may expect, Senator Toomey disagrees with McGinty’s characterization of the issue. He contends that his reform proposals will make the agency operate better. “The CFPB is completely unaccountable,” he said in 2015. “It is unique among enormously powerful regulators in having no accountability to Congress. It has exceeded its authority in part because it's not subject to congressional oversight. And it's frankly outrageous that they are able to operate with the budget that they have and with the latitude they have without having to come to Congress for this oversight.”


Do you agree with Sen. Toomey that the CFPB is in need of reform and should be overseen by Congress? Or is Katie McGinty right that these reform proposals are designed to weaken the agency?

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