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Here’s How the GOP Might Finally De-Fang the CFPB

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Update: The Consumer Financial Protection Bureau on Monday released a new five-year strategic plan, outlining a less aggressive approach to its mission of protecting consumer rights.

The consumer watchdog revised its mission and vision for 2018 through 2022. Under the new mission, the CFPB will be “equally protecting the legal rights of all,” including consumers and big financial institutions the bureau regulates.

"If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further," said the federal agency’s acting director Mick Mulvaney, in a press release.

Refocusing CFPB’s mission is in line with a spade of drastic changes to the bureau under Mulvaney, who was tapped by President Donald Trump to take the helm at the federal agency in November.

The CFPB had already had quite a few eventful weeks prior to the memo. Or, according to critics and consumer advocacy groups, it had endured a flurry of "assault" launched by Mulvaney.

In the past few weeks, Mulvaney has: 

  • Requested $0 in quarterly funding from the Federal Reserve, instead, saying it would make do with dipping into its reserve fund.  
  • Issued a call for public comment on its enforcement, supervisory, rule-making, market monitoring and education activities. 
  • Wrote to the CFPB staff in a memo that the agency will have a more limited vision.  

Meanwhile, the CFPB, under Mulvaney, has: 

  • Dropped a lawsuit against four online payday lenders whom the CFPB alleged in its original complaint had preyed on working families by making loans with interest rates up to 950%.  
  • Announced it would “reconsider” federal restrictions on payday loans. 
  • Announced a yearlong delay to the effective date of a 2016 prepaid rule that would have protected prepaid cardholders.  
  • Dropped a four-year investigation into World Acceptance Corporation, a payday lender, from which Mulvaney has received $4,500 in campaign contributions in the past. 

The moves show that Mulvaney, as expected, is actively seeking to overhaul the consumer watchdog. MagnifyMoney interviewed several experts, who all say this trend of reversing rules, dropping investigations and limiting the mission of the consumer watchdog will continue. 

Yet it’s not all bad news. After a long-fought legal battle, the CFPB won a major court victory this week. In a case questioning the constitutionality the CPFB, the Court of Appeals for the District of Columbia Circuit reversed its own decision that ruled it unconstitutional in 2016.

Conservatives have long decried the independent nature of the agency and its sweeping level of oversight in the financial sector, which includes the freedom to write new rules and regulations in the interest of consumer protection.

What’s at stake? 

The CFPB is a U.S. government agency responsible for establishing consumer protection regulations and regulating key parts of the financial sector, such as the mortgage and debt collection industries. It was established in the wake of the 2008 financial crisis as a centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The agency has zealously targeted bad actors in the financial industry since its creation, reclaiming nearly $12 billion for more than 29 million consumers. Its latest high-profile actions included fining Wells Fargo in the unauthorized accounts scandal and creating new rules around payday lending. It has also rolled out new regulations in the mortgage, credit card, debt collection and prepaid card sectors.  

The Trump administration and Republicans have long sought to curtail the CFPB’s power as part of a broader effort to lighten federal regulation over financial institutions.    

Richard Cordray was the agency’s first director, holding office from 2012 until he announced he was cutting his tenure eight months short at the end of November 2017. He had been criticized by Washington conservatives but well-received by Democrats and consumer advocates.  

Mulvaney, head of the Office of Management and Budget, took over the bureau in a drama that unfolded into a lawsuit. The fight over who is the legal boss of the bureau is still ongoing 

A former South Carolina representative, Mulvaney had said in a 2014 interview with the Credit Union Times that the CFPB was “a joke...in a sick, sad kind of way.” In 2015, he co-sponsored a legislation to eliminate the agency.  

How the GOP could dismantle the CFPB 

Legislative action … not likely 

Last year, the GOP tried to pass the Financial CHOICE Act, which would have repealed the Dodd-Frank Act and, along with it, the CFPB. The bill passed the Republican-led House in June along party lines, but didn’t make it to the Senate. 

Republican supporters of the act claimed the Dodd-Frank Act was unnecessary. Meanwhile, legal experts said deregulation would pose systemic risk, negatively affecting financial reform. 

Jim R. Copland, legal director for the Manhattan Institute and a critic of the CFPB, told MagnifyMoney eliminating the agency completely would be difficult under the current Senate structure. 

“Without 60 votes you cannot get ordinary things through the Senate,” Copland explained. “And neither party seems willing to compromise with the either on most legislation.” 

Copland added that an unusual case would be for the Supreme Court to strike down some elements of the CFPB, forcing the Congress to restructure the agency. But he thinks it’s unlikely to happen given the court has been hesitant to do so with Obamacare. 

Melissa Stegman, senior policy counsel on the federal policy team of Center for Responsible Lending, a nonprofit, nonpartisan organization based in Washington, D.C., said she thinks legislative action to get rid of the CFPB is “extremely unlikely.”  

“My impression is that there isn’t even much of an appetite to do that legislatively, because Mulvaney is already doing it through the administrative process,” she said. “They don’t even really need to purse anything externally. It’s like a self-sabotage as opposed to having the sabotage coming from the Congress.” 

Death by a thousand paper cuts 

Indeed, there are plenty of administrative maneuvers to scale back the bureau, which is well underway. It’s clear Mulvaney is already utilizing this strategy, given the small ways he has already scaled back the agency’s operations.  

He has support from Republicans on Capitol Hill as well.  

In late October, Senate Republicans killed an arbitration rule that the consumer watchdog wrote, which would have made it easier for Americans to file class-action lawsuits against big financial institutions. The treasury department had released a report against the rule in an unusual move the day before.  

“The administration can’t get rid of an agency constructed by the Congress, although they certainly can change the focus and direction of an agency,” Copland said. “I think that’s happening. At least once they get their nominee in place.” 

Stegman pointed out Mulvaney’s appointment itself is a backdoor way to overhaul the bureau. 

Freshly appointed in November, Mulvaney announced a 30-day hiring freeze at the CFPB and an immediate halt on any new regulations, rules and guidances. 

In a Jan. 24 memo to the CFPB staff, an adapted version of which was published in The Wall Street Journal, Mulvaney said he had no intention of shutting down the bureau, but the agency will have a different mission under his leadership. 

“We will exercise, with humility and prudence, the almost unparalleled power Congress has bestowed on us to enforce the law faithfully in furtherance of our mandate,” wrote Mulvaney. “But we go no further. The days of aggressively ‘pushing the envelope’ are over.” 

Mulvaney’s deregulatory agenda has critics on guard. 

“He’s made public comments [that] he sees his constituency and the people that he cares about equally as corporations and consumers, which is completely counter to the CFPB’s mission to specifically protect consumers,” Stegman said. ”That’s really concerning.” 

Under Mulvaney, Stegman expects cases that may have been under investigation to be dropped, and changes be made to rules that already have been made final. 

For instance, the Home Mortgage Disclosure Act, a 2015 rule expected to assess trends in mortgage lending and originations, ensuring that companies follow the laws, was announced to be reopened last December. 

Stegman said concerns have also risen that CFPB’s Consumer Response Database, a public database that stores more than 1 million complaints about financial products and services since 2011, may go private. 

Besides the CFPB’s research agenda possibly dramatically shifting, Stegman worries that pending CFPB rules — such as on erroneous debt collections or exorbitant overdraft fees — will “never see the light of day or be harmful for consumers.” 

“It’s not a priority for Mulvaney,” Stegman said. “So he’s not gonna pursue this.” 

This story has been updated. It was originally published Jan. 31, 2018

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Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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