The Consumer Financial Protection Bureau has been described as everything from a federal agency “run amok” to an “important tool” for protecting consumers.
Such disparate views reflects the bureau’s increasingly prominent role since it was created six years under the Dodd-Frank financial reform law. Where both critics and advocates of the CFPB agree is this: The election of Donald Trump puts a target on the agency.
The brainchild of Massachusetts Senator Elizabeth Warren, in recent years the CFPB has established rules for the mortgage industry, payday loans and for-profit colleges, among others. It has cracked down on banks, debt collectors and a range of dodgy financial firms, from bogus “credit repair” firms to predatory student loan servicers. Most visibly, the agency in September fined Wells Fargo (WFC) $100 million for opening fake accounts in customers’ names. The CFPB also has formed a clearinghouse for consumer complaints and returned millions of dollars in payments to consumers harmed by financial institutions.
Such actions, along with Dodd-Frank as a whole, aren’t helping average Americans, according to Team Trump. Reads a statement on the president-elect’s transition website:
“The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
Republicans and other opponents of the CFPB have sought to curb its power from the day it formally opened its doors in July 2011, with one goal being to revamp how the agency is structured. The CFPP draws its funding from the Federal Reserve system and is led by a single director -- currently Democrat Richard Cordray -- who oversees its rule-making and enforcement actions.
Republicans have introduced legislation, such as House Financial Services Committee Chairman Jeb Hensarling’s Choice Act, that would place Congress in charge of funding the agency and restructure it as a bipartisan commission, like the Securities and Exchange Commission. Hensarling is in the running to serve as U.S. Treasury Secretary in the incoming Trump administration.
With a Republican president and Republican-controlled Congress, such legislation could be approved. Defenders of the CFPB fear that would erode the agency’s financial independence and, by ensuring that some Republicans are always on the commission that sets its agenda, expose it to more pressure by financial industry lobbyists.
The CFPB also faces other challenges that predate Trump’s victory at the polls. The U.S. Court of Appeals for the D.C. Circuit ruled last month that the agency’s structure is unconstitutional, raising questions about its future. The Obama administration is expected to appeal the ruling.
Notably, Trump ran on a platform of overhauling the lobbying industry, although it’s unclear whether he’ll carry through on that promise. The real estate developer is adding lobbyists and corporate consultants to his transition team despite his vows to weaken their power, according to The New York Times.
As a watchdog, the CFPB could end up toothless, one Wall Street firm told its clients.
“We expect the Consumer Financial Protection Bureau to survive, but it will get turned into a commission, subjected to the congressional appropriations process and could lose its ability to police ‘abusive’ behavior,” analyst Jaret Steinberg of Cowen & Co. wrote in a research note.
Although the CFPB is in the crosshairs, moving to effectively neutralize the agency could also backfire for the Trump regime. About nine of 10 Americans say regulating financial products is important to make sure they’re fair to consumers, according to a 2016 survey from the Center for Responsible Lending and Americans for Financial Reform.
“Voters of all persuasions are dead set against turning over the keys of the government to Wall Street cronies and their ideological allies,” said Brian Marshall, policy counsel for Americans for Financial Reform, a progressive nonprofit that focuses on regulation. “People understand the difference between the banks having the power and the consumers having the power.”
Still, many consumers aren’t aware of the CFPB or its purpose, although the 2016 survey found that seven of 10 voters supported the agency once they learned about its mission. Even though Republicans were less likely to support it, six of 10 still said they agreed with its purpose.
Trump and a conservative Congress may need to navigate between their plan to weaken financial regulation and arouse the ire of consumers. Many Americans still say they haven’t recovered from the 2008 financial crisis, which depleted retirement savings and housing wealth, and left them feeling less than charitable about financial institutions. This June, only 27 percent of Americans said they have confidence in banks, down from 49 percent a decade ago, according to Gallup.
Meanwhile, the CFPB is considering new regulations for arbitration clauses, which are today used by most financial institutions to block consumers from their day in court, including banning mandatory arbitration clauses. As highlighted by CBS MoneyWatch this month, arbitration is billed by financial institutions as quick and easy, but consumers can end up saddled with large legal bills and fewer rights.