The dismantling of the Consumer Financial Protection Bureau—at least as we have come to know the agency—is now in full swing.
The not-so-slow death march began when President Trump took office just about a year ago.
A Nov. 25, 2017, tweet encapsulated much of what he had to say about the agency on the campaign trail: “The Consumer Financial Protection Bureau, or the CFPB, has been a total disaster as run by the previous Administrations [sic] pick. Financial Institutions have been devastated and unable to properly serve the public. We will bring it back to life!”
Bringing it back to life may prove to be contrary to what the administration is accomplishing.
After embattled CFPB Director Richard Cordray vacated his post on Nov. 24, a prelude to launching a gubernatorial campaign in his home state of Ohio, Trump appointed White House Budget Director Mick Mulvaney as the agency’s interim leader (Cordray’s pick, Leandra English, is facing an uphill legal battle to reclaim her title and authority).
“Not only does ordering President Trump’s OMB Director Mulvaney to moonlight as the CFPB director contradict the plain language of the CFPB statute, but it also makes a mockery of the idea of an independent federal agency,” argues Rep. Jamie Raskin (D-Md.). Referencing other administration appointees, he opined that, “President Trump has temporarily succeeded in putting the Joker, the Riddler, and the Penguin in charge of Gotham City.”
Mulvaney, as was feared by Democrats, quickly put his mark on the agency with an opening salvo of altering the short, barely-ever-read tagline at the bottom of Bureau press releases.
The old kicker, stressed the Bureau’s role as a rule-enforcing advocate for consumers:
“The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
The revised text stresses a philosophy of deregulation:
“The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations, by making rules more effective, by consistently enforcing federal consumer financial law, and by empowering consumers to take more control over their economic lives.”
There is also, as revealed last week, the tell-all of Washington bureaucracy: funding (or lack thereof). The CFPB, unlike other agencies and in an effort by its Dodd-Frank Act architects to secure its political independence, is exempt from the process of Congressional budget approval. Instead, funding requests filter through the Board of Governors of the Federal Reserve and funded by the Federal Reserve.
“This letter is to inform you that for the second quarter of Fiscal Year 2018, the Bureau is requesting $0,” Mulvaney wrote in his first quarterly budget request. “Simply put, I have been assured that the funds currently in the Bureau Fund are sufficient for the Bureau to carry out its statutory mandates for the next fiscal quarter.”
“My understanding is that previous Bureau leadership opted to maintain a ‘reserve fund’ to address possible financial contingencies, although I know of no specific statutory authority requiring the establishment or maintenance of such a reserve,” he added. “Moreover, I see no practical reason for such a large reserve, since I am informed that the Bureau has never denied a Bureau request for funding and has always delivered requested funds in a timely fashion.
“It is my intent to spend down the reserve until it is of a much smaller size, while still allowing the Bureau to successfully perform its functions, before making an additional financial request of the board.”
“Not only does ordering President Trump’s OMB Director Mulvaney to moonlight as the CFPB director contradict the plain language of the CFPB statute, but it also makes a mockery of the idea of an independent federal agency.”
Rep. Jamie Raskin (D-Md.)
Mulvaney closed on a note of fiscal accountability: “The men and women of the Bureau are proud to do their part to be responsible stewards of taxpayer dollars.”
Last quarter, Cordray’s request was for $217.1 million.
The budgetary maneuver as expected, has drawn both cheers and jeers. In the latter camp is Rep. Carolyn Maloney (D-M.Y.)
“Our worst fears about Acting CFPB Director Mick Mulvaney have been realized—he is clearly trying to dismantle from within the one federal agency whose sole mission is to fight for and protect consumers,” she wrote in a response to the news. “The Trump administration’s irresponsible and shameful decision to defund and defang the CFPB will mean that consumers’ interests will once again take a back seat to corporate interests. The American people deserve a far better deal than this.”
Maloney pointed out that, under the leadership of Cordray, the CFPB secured more than $12 billion in penalties and restitutions on behalf of nearly 30 million consumers.
“The CFPB has made consumers far better off than they were before its founding,” she added. “These efforts to dismantle it are not only foolish but will lead to actual harm for millions of hard-working Americans.”
Budget concerns aren’t alone in stoking the fears of CFPB defenders.
Last week, Mulvaney initiated a public comment process that may be a prelude to reshaping the entire agency.
The Bureau is issuing a call for evidence to ensure that it is “is fulfilling its proper and appropriate functions to best protect consumers.”
The Bureau will be publishing in the Federal Register a series of Requests for Information seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. “These RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities,” the announcement says.
“In this New Year, and under new leadership, it is natural for the Bureau to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate,” Mulvaney said.
The first RFI issued by the Bureau will seek public comment on Civil Investigative Demands, which are issued during an enforcement investigation. Comments received in response to this RFI will help the Bureau evaluate existing CID processes and procedures and determine whether any changes are warranted.
The CFPB may also be turning away from some of its most controversial rulemakings. Among them, the so-called “payday rule.”
“The Bureau intends to engage in a rulemaking process so that it may reconsider the Payday Rule,” Mulvaney wrote.
During Cordray’s tenure, the CFPB enacted the controversial rule in October. It was “aimed at stopping payday debt traps by requiring lenders to determine upfront whether people can afford to repay their loans.”
Under the existing rule, lenders must conduct a “full-payment test” to determine upfront that borrowers can afford to repay their loans without re-borrowing. For certain short-term loans, lenders can skip the full-payment test if they offer a “principal-payoff option” that allows borrowers to pay off the debt more gradually. The rule also requires lenders to use credit reporting systems registered with the Bureau to report and obtain information on certain loans covered by the proposal.
While consumer advocates fretted, critics of the rule celebrated.
“The payday lending rule violates the Paperwork Reduction Act, a longstanding law aimed at controlling regulatory burdens,” says Sam Kazman, general counsel for the free-market advocates at the Competitive Enterprise Institute. “[The rule] would lead not to paperwork reduction, but to paperwork proliferation on a massive scale. We welcome the CFPB’s decision to reconsider the rule, and we hope the bureau will pay more attention to this enormously expensive problem.”
The Paperwork Reduction Act of 1995 was passed by Congress to protect entities from excessive costs imposed by regulators.
The payday rule in its current form would both impose big paperwork burdens and effectively block consumer access to small-dollar loans, Kazman said.
The rule’s crackdown on small-dollar loans, the CEI adds, would disproportionally hurt the “working poor.”
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) praised the rule retreat and review of agency practices.
“The CFPB has an important mission, and it is capable of great good,” he said. “But when it acts without accountability or transparency, it is also capable of great harm … Congress must protect the American people from overreach at the CFPB, which infringes on consumer choice and economic freedom under the guise of consumer protection.”
In related news, on Jan. 18, Bloomberg reported that the CFPB is dropping a lawsuit against payday lenders accused “of deceiving consumers and failing to disclose the true cost of the loans, which carried interest rates as high as 950 percent a year.” The lenders attempted to mask and insulate themselves through an association with a Native American tribe.
Other recent statements by the Bureau indicate a similar rethinking of (or delaying) a final rule imposing oversight on prepaid accounts, penalty relief associated with updates to the Home Mortgage Disclosure Act.
The Bureau also intends to engage in rulemaking to reconsider various aspects of the 2015 HMDA rule such as the institutional and transactional coverage tests and the rule's discretionary data points. More specifically, the rulemaking may re-examine lending activity criteria that determine whether institutions are required to report mortgage data.
Pending legislation is also targeting the CFPB.
H.R. 1264 would exempt community financial institutions from all rules and regulations issued by the CFPB. A “community financial institution” is defined as an insured depository institution or credit union with less than $50 billion in consolidated assets.
The legislation would also weaken the powers of the Consumer Financial Protection Bureau. Under the proposed law, the president could fire the agency’s director at will, and its oversight powers would be curbed.
H.R. 3746 would allow insurers and other persons engaged in the business of insurance to be shielded from scrutiny and oversight by the CFPB. Likewise, H.R. 4550 would restrict the CFPB’s authority to supervise and take enforcement action against law firms and attorneys acting as debt collectors.
Hensarling’s Financial CHOICE Act, a package of Dodd-Frank Act reforms, would rename the CFPB as the Consumer Law Enforcement Agency, with a deputy director appointed by the president and removable at will. Congressional budget oversight would be restored.
Hensarling also breathed new life into an unsuccessful legislation that would transfer the CFPB’s roughly 1,600 employees from the Federal Reserve Board scale to the less generous General Schedule that applies to most federal agencies. The pay scale reclassification could reduce pay for CFPB employees by 20-25 percent, affecting retention and recruitment.
Meanwhile, barring English’s lawsuit, the search for a permanent director, to replace Mulvaney before his temporary term expires in June, is underway. Among the trial balloons floated is National Credit Union Administration Chairman Mark McWatters.