A day of reckoning has arrived for Elizabeth Warren’s favorite regulator.
Republicans -- as well as many lobbyists -- have long vilified the controversial Consumer Financial Protection Bureau for having scant accountability and writing rules that harm banks. Next year when the party controls both the U.S. Congress and White House, they’re finally in a position to do something about it.
President-elect Donald Trump could sign legislation proposed by Republicans that would put the agency under Congress’s thumb. Lawmakers could also overturn specific CFPB regulations, including one loathed by the industry that made it easier for consumers to sue their banks.
Most importantly, Republicans are poised to get the chance to replace the CFPB’s aggressive leader, Democrat Richard Cordray. His term is up in 2018, but Trump may be able to replace him even sooner if a recent court ruling is upheld that gave the president more leeway to oust the agency’s director. Trump would be expected to replace Cordray with someone far less interested in pursuing tough oversight.
“For many years now we have been trying to work with Elizabeth Warren and Senate Democrats to craft a bipartisan solution in case this very scenario happened,” said Richard Hunt, head of the Consumer Bankers Association, a banking lobbying group. “I wish they would have taken our deal because now they put the future of the CFPB at jeopardy.”
But Republicans will have to tread the politics of going after the CFPB carefully. It’s arguably on a high note after leading other agencies in imposing a $185 million fine on Wells Fargo & Co. over its bogus account scandal. While Republicans have joined Democrats in criticizing Wells Fargo, they’ve also aggressively questioned why regulators didn’t stop the alleged wrongdoing sooner.
Regardless, Senator Warren of Massachusetts and other progressive Democrats will be on the defensive. There are procedural ways for senators to try to block legislation, and Warren has already said she would protest any changes Trump seeks to make to the agency she helped create. But the fact that Congress isn’t needed at all for Republicans to make drastic changes to the leadership and direction of the CFPB might put pressure on Democrats to agree to some changes for the agency. It’s possible Republicans could even try to drop something in a must-pass spending bill this year before Trump’s presidency even begins.
“There are some very clear implications,” said Raj Date, the CFPB’s first-ever deputy director. The prospect that Trump could have his pick of directors “is enough to prod the desire for a bipartisan solution.”
Signs are already emerging that Trump will try to rip up financial rules. His transition team announced on its website that he plans to dismantle the Dodd-Frank Act. Former Securities and Exchange Commission member Paul Atkins has been tapped to review independent financial agencies for Trump’s transition team. When he was at the SEC, Atkins was known for voting against several rules and opposing large fines against companies, arguing that they hurt shareholders.
In October the CFPB took a blow when a federal appeals court ruled that the agency is “unconstitutionally structured.” The court said too much power resides in the role of its director, who the president can only fire for cause. The three-judge panel voided the for-cause provision, allowing the president to remove the CFPB director at any time for any reason.
The Obama administration is widely expected to appeal the decision, which would effectively stop it from going into effect before Trump takes office in January. Still, the incoming president could try to to find cause to replace Cordray, like claiming the CFPB director neglected his duty or was inefficient in office.
The CFPB was the brainchild of Warren, created in the wake of the financial crisis to regulate mortgages, credit cards and other products directed at consumers. While other agencies are run by a chair and a bipartisan commission that reports to Congress, the CFPB gets its funding from the Federal Reserve system and has a single person in charge of approving rules and enforcement actions. Cordray, a Democrat and the former attorney general of Ohio, was appointed by Obama in 2012 while the U.S. Senate was in recess.
Since the CFPB’s inception, banks have argued that certain rules have restricted consumers’ access to credit and financial products they want. Assaults on the agency run deep and have gone mainstream, with super-PACs and nonprofits funding millions of dollars into anti-CFPB television advertisements. Specific rules such as restricting payday lenders from extending credit until they can ensure customers are capable of repaying their loans have prompted companies to protest the agency and its actions.
Republicans have introduced multiple pieces of legislation that would make changes to the CFPB. Most notable is House Financial Services Committee Chairman Jeb Hensarling’s Choice Act, a package of proposals introduced earlier this year that rips up several core parts of Dodd-Frank. Hensarling’s plan would require the CFPB to have a multi-member bipartisan commission and have its funding set by Congress. The CFPB also would have to complete more cost-benefit analysis before adopting rules and be stripped of some of its powers, such as the ability to deny consumers access to financial products that it deems abusive.
In anticipation of Trump taking office, the CFPB isn’t likely to make any drastic revisions on its own, said Quyen Truong, the former deputy general counsel at the CFPB who is now a partner at the law firm Stroock & Stroock & Lavan. But Washington’s new political landscape will undoubtedly lead to long-term changes, she said.
“The CFPB is going to need to think much harder about congressional reaction to its rules,” Truong said. “The CFPB may now rethink the timing of some rulemakings.”
So Democrats, including Warren, may now be the ones seeking tweaks to the CFPB to stop Republicans from crippling it entirely.