Trump Gets Chance to Reshape CFPB

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.

Richard Cordray announced on Wednesday that he’ll step down as director of the Consumer Financial Protection Bureau (CFPB) by month-end.

Cordray has yet to reveal what he intends to do next— but it’s rumored he’s planning to run for governor of Ohio.

Trump will be able to name a new agency director, who– if confirmed by the Senate–  will shift rule-making and enforcement policies in a more bank-friendly direction.

When Congress created the CFPB in 2010 in the Dodd-Frank act, it specifically structured the agency so as to insulate it from political pressure.  That means that the President can only fire its director for cause. Thus far, Trump hasn’t been able to shape the direction of agency operations by replacing Cordray.

The usual mainstream media suspects– see the New York Times in Mulvaney Expected to Run Watchdog Agency He Wanted to Kill, for example— lauded Cordray’s tenure, giving him undue credit for pursuing an aggressive consumer financial protection agenda, “During his tenure, the agency gained a reputation as an active watchdog for the financial rights of consumers.”

Yet these plaudits are undeserved.  The agency failed to pursue aggressive agenda in areas such as foreclosure abuses and student loan servicing.

In addition, the CFPB made basic tactical errors—especially its delay in promulgating a rule banning mandatory arbitration in consumer financial contracts. Such widespread, “voluntary” clauses prevent consumers from pursuing class action lawsuits.

Despite producing a comprehensive study on these clauses in December 2013, the agency dilly dallied and failed to issue a final rule until July. This slow walking allowed Congressional Republicans and Trump to overturn the rule earlier this month under special procedures authorized under the Congressional Review Act (CRA)– as I discussed further in RIP, CFPB Mandatory Arbitration Ban.

We Ain’t Seen Nothing Yet

To say that the CFPB underperformed under Cordray is not to deny that things won’t get worse now that Trump can name a new CFPB director. As has been widely reported, his first move is likely to be to name Mike Mulvaney, current head of the Office of Management and Budget (OMB) and a fierce critic of the CFPB, as interim director until a permanent replacement is nominated and confirmed by the Senate. Mulvaney would continue to hold his OMB position while serving as CFPB interim director.

The Wall Street Journal reports in Trump Is Expected to Name OMB Director Interim Head of Consumer Regulator:

At his OMB confirmation hearing in early 2017, Mr. Mulvaney called the CFPB “one of the most offensive concepts” in the U.S. government and said he stood by an earlier comment describing it as a “sad, sick joke.”

Trump has had a major impact on several areas of regulation, especially financial regulation and environmental policy, by selecting hatchet-wielding Cabinet officers and tasking them with pursuing a deregulatory agenda, as I discussed further in these posts, New EPA Lawsuit Policy Advances Trump’s Deregulatory Agenda and Financial Regulatory Rollback Proceeds.

As the Washington Post further notes in Richard Cordray is stepping down as head of Consumer Financial Protection Bureau when discussing how to achieve regulatory rollback:

The most efficient way, industry officials say, to remake the rules is through appointing new regulators who can change an agency’s focus, tone and priorities. Cordray’s departure “will complete the Team Trump take over of the regulatory agencies. It should mean by summer there are Republicans running all of the banking agencies,” said Jaret Seiberg, an analyst with Cowen and Co.’s Washington Research Group.

Whoever is installed as director, the long-anticipated departure of Cordray has already had an effect on ongoing enforcement activities, as Reuters reports in Financial firms stall settlement talks amid U.S. consumer watchdog upheaval:

The departure of Richard Cordray at the end of the month gives companies being pursued by the CFPB for alleged predatory lending practices added incentive to stall settlement talks until Republican President Donald Trump puts his own appointee in place, lawyers and analysts say.


Behind the scenes, other firms have been dragging out settlement talks – spending months wrangling over the extent of their liability, how consumers should be compensated and penalties calculated – all the while hoping for a sympathetic regime change, several lawyers working on dozens of cases told Reuters.

These companies will be emboldened to continue to hold out for better settlement terms in the belief new leadership at the CFPB will be unlikely to take them to court if they do not play ball.

On the enforcement side, the impact of the appointment of a new director would extend beyond potential settlements. Turning again to the Reuters piece cited above:

A Trump appointee likely would review all the CFPB’s pending litigation and pre-litigation enforcement actions, and could ultimately drop borderline cases or move to swiftly settle them on generous terms, lawyers and analysts said.

They highlighted the CFPB’s current actions against TCF, Navient, mortgage servicer Ocwen Financial Corp. N>, mortgage company PHH Corp. and consumer finance group World Acceptance Corp. as cases that might be quickly resolved. Shares in these companies closed up on Wednesday, when Cordray announced his departure.

And on  the rule-making side, a new director is expected to shift CFPB’s approach significantly, in the following ways, as the Chicago Tribune reports in Trump is said to consider tapping Mulvaney for CFPB overhaul:

An interim director could immediately change the tone at the CFPB by making it more friendly to banks, halting work on unfinished regulations and slowing down rules that haven’t yet taken effect.

A temporary head could also have a major impact on the CFPB’s oversight of specific companies. Investigations into wrongdoing might be shut down and supervisory exams could be less intrusive.

Another expected target of a Trump-installed director would be the CFPB’s database of consumer complaints. Hated by banks, it allows the public to review grievances about specific firms and has been used by the CFPB to open investigations. Getting rid of the database entirely may be difficult, according to some lawyers, but it’s within the director’s authority to make it private and to temporarily shut it down.

The Bottom Line

The Cordray-led CFPB proved to be a major disappointment to consumer advocates. Under a Trump-nominated director, the situation will only worsen, with the CFPB expected to scale back the scope and range of it activities drastically.

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  1. David, by the lake

    I am a member of credit unions for a reason. If the banks don’t respect you as a customer, don’t be a customer.

  2. Vatch

    Maybe Trump will nominate John Stumpf, the former CEO of Wells Fargo Bank. Or if Mr. Stumpf isn’t sufficiently detail oriented, the President will nominate Carrie Tolstedt. She knows how to get things done!

  3. TarheelDem

    The historical record is that when the financial industry gets what it wants, it proceeds to destroy the financial system and create general misery, which eventually gets political blowback.

    Given that we are going off of a 40-year manufacturing decline in employment instead of a 10-year decline in agricultural prices, that disruption could be more drastic that the 1929-1940 Great Depression.

    A nation of deadbeats indeed!

  4. perpetualWAR

    The CFPB is a wonderful thing. A nice database of criminal acts by the banks that have not been addressed by our collusive federal government.

  5. David

    Lotta speculation as to what Mr. Mulvaney will do or even if he’ll get appointed.

    Here’s the transcript of what Mulvaney said in his confirmation regarding the CFPB (edited).

    Senator MERKLEY [Jeff Merkley (D) OR] ..Do you still believe that CFPB is a sad, sick joke?

    Mr. MULVANEY. Yes, sir, I do, and I will be happy to tell you why. It is to me, sir, one of the most offensive concepts, I think, in a representative Government, which is an almost completely un- accountable Government bureaucracy, Government regulatory agency. One of the most frustrating experiences I have had since I have been in Congress is people walking into my office and ask- ing me for help and having me look them in the eye and say, ‘‘I am sorry. There is no way under any circumstance that I can help you.’’ And that is what I have been forced to do with the CFPB, because they are off appropriations, because we do not budget for them, because they are run by essentially a one-person dictator who believes he cannot even be fired by the President but for cause. We have created, perhaps inadvertently, the very worst kind of Government entity.


    Senator MERKLEY. So let me stop you there and just say I understand you do not like the structure of the CFPB.

    Mr. MULVANEY. Yes, sir.

    Senator MERKLEY. But when you look at the fact that they have returned millions of dollars from organizations that essentially admitted—because these were largely settlements—admitted that they had misled borrowers or cheated them outside the law, isn’t that a good thing to have somebody holding those folks accountable?

    Mr. MULVANEY. It is a fair point, Senator. I would suggest to you there is no evidence that the same or a better result would have been reached under the regime that existed beforehand. As you know, the CFPB essentially took over functions that were already being performed by various regulatory agencies, and there is evidence that the CFPB has actually failed miserably in some very high circumstance—or high-profile circumstances, such as the Wells Fargo debacle where I think CFPB may have been resident in Wells Fargo for 4 years and still failed to discover the wrong doing that was taking place there.

    Senator MERKLEY. Recently, the CFPB is suing Navient, which it says, and I quote, ‘‘misled borrowers, illegally driving up loan repayment for millions of students.’’ Do you consider that to be a positive thing that we have an organization that is taking on actions that are deliberately misleading our students who have enormous loan debts?

    Mr. MULVANEY. Oh, I absolutely do believe it is a good idea to have an organization that would enforce the law. I would question whether or not the CFPB is the best way to do that, question whether or not that enforcement would have taken place. And I would remind everyone who discusses this issue that what is al- leged—and I have no facts and circumstances to know one way or the other—is already against the law and would be against the law regardless of whether or not the CFPB existed.

    Senator MERKLEY. A lot of the challenge that we have in that in ordinary transactions companies have arbitration clauses that make it basically impossible for them to have any leverage. If you are familiar with how an arbitration clause works, the individual has to go to someone selected by the company, and that individual does not get business unless they find on the company’s behalf. So it is a terribly rigged system.
    But here we have a way, an effective strategy, that has taken on misdeeds in all kinds of groups. You say they did not act fast enough on Wells Fargo, but they have acted more quickly than any other agency. And you also said that just the same would have happened in the previous period, if we compare it before we had the CFPB. But that is just not the case. We did not get this kind of action on behalf of consumers before. We did not get $12 billion returned to 29 million consumers.
    So given there are 29 million people out there who have benefitted—you have a dispute over the structure of the funding and the structure of the board. I hear that. But isn’t that kind of look- ing at the tree and not the forest?

    Mr. MULVANEY. No, sir. I think that there is a fundamental objection, a principled objection to an agency that is not accountable to the people that it is supposed to serve. So——

    Senator MERKLEY. But it actually was designed this way, in fact, so it would be accountable, and you have to understand that the reason why is because ordinary citizens have very little power compared to the fabulous power concentrated in Wall Street. Large financial institutions do not want there to be a consumer watchdog that holds them accountable to the law. We finally have that consumer watchdog. We know what would happen if we had structured the funding differently. You would have stepped on the air hose—not you personally, but Congress, with the enormous clout of Wall Street pushing them, would have stepped on the air hose and shut them down. And we have seen the—you want a type of board that has worked miserably for all kinds of other organizations where there is no quorum or it is a 2–2 tie and no action. This has actually worked. I mean, if you take a look at how to create an effective organization fighting for ordinary working Americans, I mean, this is it.

    Mr. MULVANEY. Senator, all I can tell you is I have had probably more complaints about the CFPB in my office from small local banks and credit unions, which I am not from a big bank area, than every other Government agency put together. So I would respectfully disagree with you, sir.

    After Merkley had been gaveled down,

    Chairman ENZI. [Michael Enzi ( R ), WY] ..I am the one who got an Inspector General for the CFPB and found out that he had no right to inspect…There is no oversight by Congress

    Unaccountable (no inspections), ineffective (Wells Fargo), and strangling small local banks and credit unions. IMO, it’s ready for reform.

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