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

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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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

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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

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2019 Fed Meeting Predictions — No More Rate Hikes Until 2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The March Fed meeting put the kibosh on more rate hikes in 2019. With FOMC policy on pause, market interest rates should hold steady (or even decline in some cases) for financial products you use every day. Read on for our predictions for each upcoming Fed meeting and updates on what went down at the most recent conclaves.

What happened at the March Fed meeting

The Federal Reserve signaled no rate hikes this year, and the possibility of only one increase in 2020. The Fed has pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it puts policy on ice. This change in tone grows directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains have plateaued along with the unemployment rate, which nevertheless remains at very low levels.

So the federal funds rate looks to remain at 2.25% to 2.50% for a year or more, and the FOMC highlighted that this is the not-too-hot, not-too-cold level that for now best serves its dual mandate to “foster maximum employment and price stability.”

The Fed also released its Summary of Economic Projections (SEP). The March SEP indicated a median projected federal funds rate of 2.6% for 2020, which is why everybody is discussing the possibility of at least one, small increase next year.

For those who were really hoping for at least one more rate hike, all is not lost — Tendayi Kapfidze, LendingTree chief economist, believes we shouldn’t take March’s decision too gravely. “There are special factors that suggest the economy could reaccelerate,” he says. “The government shutdown threw a wrench into things, slowing some activity and distorting how we measure the economy.” He also remarks that since the financial crisis, data in the first quarter has continued to come in weak, still leaving room for everything to reaccelerate in the second and third quarters. He points to the already strong labor market as a plus.

Fed economic forecasts hint at a possible rate cut by the end of 2019. Just as the Fed projects a slightly higher federal funds rate in 2020, it also posted a projected 2.4% for 2019. Note that this projected rate falls below the upper end of the current rate corridor of 2.5%. This means the doves may want to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.

When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s current positive outlook, while also emphasizing that it remains mindful of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it’s still early in the year, they have limited and mixed data to consult.

Kapfidze offers a more concretely positive outlook, noting that the chances of a rate cut are pretty slim. “To get a rate cut, you’d have to have sustained growth below 2%. There would have to be further weakness in the economy, like if trade deals get messier, to warrant a rate cut.”

The Fed downgraded its economic outlook for 2019 for the second time in recent months. In line with Kapfidze’s predictions, we did see a weaker economic outlook coming out of this month’s Fed meeting. The median GDP forecast for 2019 and 2020 decreased from December projections, while it remained the same for 2021 and beyond. This comes hand in hand with the decreased fed funds rate projections.

The FOMC increased their unemployment projections, which Kapfidze found surprising because the labor market has been so strong. “Maybe they believe that those numbers indicate a deceleration,” he said, “but really, it has to be consistent considering the other changes that they made.”

Why the Fed March meeting is important for you

It’s easy to let all of this monetary policy talk go in one ear and out the other. But what the Fed does or doesn’t change has an impact on your daily life. Without a rate hike since December, we’re already starting to see mortgage rates fall. This is helpful not only for those who want to buy a home, but also for those who bought homes at last year’s highs to refinance.

As for personal loans and credit cards, we may still see these rates continue to increase, just at a slower rate. These rates have little chance of decreasing because lenders may take the current weaker economic data as a sign that the economy is going to be more risky.

Deposit accounts will feel the opposite effects as banks may start to cut savings account rates. At best, banks will keep their rates where they are for now, until more evidence for a rate cut arises.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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