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A Future Where The CFPB Is Ineffectual Or Ceases To Exist?


Despite all the talk about shrinking government it is relatively rare that a federal agency is eliminated. In 1998 Congress dissolved the U.S. Information Agency, a public relations wing of the government that communicated to 150 nations at the height of the Cold War, with its responsibilities being absorbed by the Department of State. In 1996 Bill Clinton and Newt Gingrich had a rare moment of agreement as they eliminated the Interstate Commerce Commission, which had regulated everything from telephone companies to railroads for more than a century. But the last two decades have been dominated by many more instances where politicians talked a big game about slashing government — particularly plans to dismantle Cabinet-level agencies such as Education, Energy and Commerce — and ran into roadblocks.

The Consumer Financial Protection Bureau (CFPB), established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is the latest agency under assault. Twin bills introduced by Sen. Ted Cruz (R-Texas) and Rep. John Ratcliffe (R-Texas) on February 15 would eliminate the CFPB by repealing Title X of Dodd-Frank. Cruz said his bill “gives Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth.”

Perhaps mindful of the difficulty in completely eliminating an agency, other Republicans have taken a different tack to diminish the agency’s impact, focusing on changes to its funding and leadership. On February 15 a dozen Republican senators, led by David Perdue (R-Georgia), introduced a bill that would give lawmakers control over the CFPB’s budget; CFPB is currently funded through the Federal Reserve. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) originally aimed to turn CFPB into a five-member bipartisan commission with his Financial Choice Act but a recent memo revealed a plan to turn the head of the agency into a political appointee who could be dismissed at-will by the president. This would portend the dismissal of CFPB Director Richard Cordray, an aggressive regulator whose term does not expire until July 2018. Last October a federal appeals court held that the president’s limited ability to remove the bureau’s director was unconstitutional. However, that ruling was vacated on February 16 and is pending a rehearing before the full D.C. Circuit Court of Appeals.

Hensarling’s revised bill would also strip CFPB of its authority to bring cases against financial institutions under a provision known as unfair, deceptive and abusive practices (UDAAP) and scrap consumer complaint databases. Financial institutions have complained that UDAAP is a catch-all to address behavior that the CFPB finds objectionable, as the agency is given broad discretion to determine what is legal while financial institutions operate in the dark.

CFPB’s ability to issue regulations could also be thwarted by the GOP Congress. Under the Congressional Review Act, Congress can reject a regulation through a joint resolution of the House and Senate. The resolution can be passed with a simple majority in the Senate, immune to a filibuster, and then be sent to the president for a signature or veto; President Trump is likely to approve resolutions that would reverse CFPB regulations. This means that two of CFPB’s proposed rules — one prohibiting mandatory arbitration clauses that prevent consumers from joining together to sue financial services companies for wrongdoing, another designed to end payday debt traps by requiring lenders to ensure consumers have the ability to repay their loans — could be dead upon arrival. Senator Perdue has already introduced a joint resolution which would negate the CFPB’s prepaid account rule, requiring companies offering prepaid services to provide more transparency around fee structures, indicate whether customers’ funds are insured and make user agreements publicly available.

On top of these congressional actions, a February 3 executive order from President Trump instructs the Treasury secretary to review the effectiveness of the laws, regulations, guidance and policies of various banking regulators, including CFPB; Treasury will report its findings by June 3. No one knows where the chips will fall but it is a near certainty that CFPB’s rulemaking and enforcement efforts will be severely curtailed under the new administration, even if the agency manages to avoid termination.

Topics: CFPB