The Treasury Department on Monday released a report also recommending changes to Dodd-Frank and limits to the CFPB.
"The CFPB was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to regulatory abuses and excesses. The CFPB's approach to enforcement and rulemaking has hindered consumer choice and access to credit, limited innovation, and imposed undue compliance burdens, particularly on small institutions," the report said.
The department recommended that the CFPB should be led by a single director who can be removed at will by the president. Currently, the president can remove the director only for cause. The report suggested that if the bureau is not led by a single director who can be fired at will, it should be restructured as an independent commission or board, "which would create an internal check on the exercise of agency power."
The report also said the CFPB should adopt regulations that convey its UDAAP interpretation. "The agency should seek monetary sanctions only in cases in which a regulated party had reasonable notice -- by virtue of a CFPB regulation, judicial precedent, or FTC precedent -- that its conduct was unlawful," the report said.
The report calls for the CFPB to bring enforcement actions in a federal district court rather than use an administrative proceeding because of the undefined scope of UDAAPs and uncertainty for market players, and the lack of "procedural protections" in administrative proceedings.
Under this reform, the CFPB would still have the authority to issue a cease-and-desist order or initiate an enforcement action seeking injunctive relief, the report said. If the bureau identifies a practice as a problem in the market, it should give notice and a comment period for the rule-making to prohibit the practice.
"This reform would give regulated parties the certainty and predictability they need to meet diverse consumer financial needs without fear of unexpected sanctions, while preserving the CFPB's flexibility to respond to new risks," the report said.