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How much will the new administration in Washington change the federal government’s fledgling Consumer Financial Protection Bureau?
Republicans have long wanted to reformulate the agency and fire its director. Richard Cordray was appointed by President Obama and confirmed by the Senate in 2013.
Last week, the agency filed court papers that show Cordray will try to keep his hands on the reins after President-elect Donald Trump is inaugurated Jan. 20. The filing appealed a court decision which said he could be removed from his post by the president at any time without cause.
Whether Cordray can remain until the end of his term in mid-2018 is uncertain. But for a time, the filing of the appeal means the agency can continue to crack down on financial practices that it thinks harm consumers, despite hostility from Congress and the White House.
“No one is going to do anything until an appeal is decisioned,” said Craig Nazzaro, a lawyer with Baker Donelson who follows financial regulations and the CFPB. Furthermore, “Whoever loses is going to appeal to the Supreme Court.” That likely means a legal shield for the current director at least for next one to two years.
Facing a hostile Congress, the CFPB is hamstrung in writing new regulations, at least those that don’t have bipartisan support. Even some of its existing rules may be subject to rollback under the Congressional Review Act. That puts a cloud over rules for prepaid debit cards, debt collectors, payday lenders and mandatory arbitration clauses.
But the agency can continue to launch its enforcement actions, which its critics decry as de facto regulations. For example, its string of a dozen crackdowns on credit card add-on products has driven widespread reform by card issuers – and refunded $2.8 billion to cardholders.
In its supervisory role, it will continue to oversee day-to-day operations of large banks and credit unions, debt collectors, consumer reporting companies and other financial actors.
It can continue to publish reports – such as one about debt-addicted customers reborrowing payday loans again and again – that lay the groundwork for industry reform.
And it can keep its complaint window open, where consumers lodge their gripes about a financial service, and the public can see how the company responds.
The bureau was created as the cop on the beat watching out for consumers by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law consolidated consumer protection powers that had been spread over seven different agencies.
Trump has said he wants to repeal Dodd-Frank, on the basis that overregulation is hampering lending and economic growth. He also signaled support for a Republican bill in Congress that would greatly reduce the agency’s powers. The Financial Choice Act, sponsored by House Financial Services Committee Chairman Rep. Jeb Hensarling, would replace the agency’s single director structure with a five-person, bipartisan commission, among other changes.
The idea that the CFPB’s single director is too powerful got judicial support in October. In a case involving kickbacks to a New Jersey mortgage company called PHH Corp., a three-judge panel of the D.C. Circuit Court of Appeals said that the agency’s single-director structure was unconstitutional. The fix, according to its ruling, was to make the director subject to replacement by the president. Under the Dodd-Frank law that created the agency, the director can only be removed for “inefficiency, neglect of duty or malfeasance in office.”
The court decision gained importance once the election Nov. 8 determined that Obama’s successor had a very different view for the agency. The CFPB’s appeal filed last week says the case may be “the most important separation-of-powers case in a generation.” For watchers of constitutional law, the outcome will help determine how easily a new president can undo his predecessor’s actions.
For consumers, the stakes are more concrete. “If the Trump administration installs a new director, they can go in and redo everything that was done for the first five years,” Nazzaro said. Even regulations that remain on the books can languish without enforcement, and industry will take its cue from the agency’s enforcement posture.
For that reason, Democrats in Congress may compromise and restructure the agency with a bipartisan commission, as Republicans have proposed. Otherwise, they’ll have to live with Trump’s sole pick to head the agency in 2018 – if not sooner, depending on the outcome of the appeal.
As the new Congress dives into financial regulatory reform, “A key question is what reform provisions garner support from Democrats,” Elizabeth Oesterle, director of federal government affairs at Experian, said during a recent panel discussion. With 48 seats in the Senate, the minority party has the power to block initiatives if they dig in their heels, for now. The shape of the agency could depend “on how Democrats play their filibuster card.”