After a bumpy leadership change at the Consumer Financial Protection Bureau, the agency’s acting director is planning to “fix” the bureau and cut industry regulations, according to a CFPB spokesman.
Since Mick Mulvaney began serving part-time as acting director, CFPB has filed no enforcement actions against financial institutions, and as some Republicans and industry players continue to rail against the agency, consumer advocates worry that its ability to hold bad actors to account could be eroded.
CFPB communications staff did not arrange an interview or respond to requests for specific information for this story. However, spokesman David Mayorga said in an email that Mulvaney, who also heads the Office of Management and Budget, “is working to fix the agency.”
“In particular, we will be examining the rulemakings and regulations already in the pipeline, and considering what steps to take to reduce regulatory burden,” Mayorga said.
After a financial crisis and recession 10 years ago, Congress created CFPB as part of the Dodd-Frank financial reform bill. The agency became a consumer watchdog when it comes to financial institutions and their practices, products and services.
As of last year, the bureau had helped more than 29 million consumers receive about $12 billion in relief due to enforcement actions.
Before CFPB’s creation, no federal agencies were responsible for ensuring that the financial services marketplace was fair to consumers, said Rachel Weintraub, legislative director and general counsel for the Consumer Federation of America.
“We felt like it was dire that it be created,” she said, “and that it be created in a robust way … to signal to players in the financial services world that if you conducted yourself in illegal, discriminatory, unfair, fraudulent ways, that you would be held accountable.”
Because the bureau receives its funding from the Federal Reserve instead of Congress, it is designed to have less political influence than other agencies. However, politics has become part of the bureau’s story as Republicans and financial institutions alike have challenged CFPB’s authority and enforcement actions.
In one example that continues to play out, CFPB accused mortgage lender PHH of taking part in an illegal kickback scheme, leading PHH to strike back with a lawsuit that accused the bureau of being unconstitutional.
In that suit, a circuit court ruled that CFPB’s structure is unconstitutional. A judge said at the time that CFPB’s director has more power than those filling the roles of speaker of the house, senate majority leader and Supreme Court justice. A three-judge panel knocked down the bureau’s enforcement actions against PHH, and two judges ruled CFPB’s structure unconstitutional. CFPB has since appealed.
Mulvaney takes the reins
After some Republicans, including Rep. Jeb Hensarling (R-Texas), called for his ouster, former director Richard Cordray stepped down in November. Before he left, Cordray appointed Deputy Director Leandra English to succeed him as acting director, but Trump also named Mulvaney to the position. These dual appointments led to confusion as to who was in charge until a judge ruled it was Mulvaney.
While the agency has an acting director in Mulvaney, CFPB continues to await Trump’s nominee for a permanent director. The nominee would then need to be confirmed by Senate.
Mulvaney’s actions thus far suggest a philosophical change for the bureau. Since his arrival two months ago, CFPB has taken no enforcement actions against financial institutions. During the same period the previous year, the bureau filed a dozen enforcement actions.
“So, we’re really concerned about what this signals to the marketplace and whether this signals that breaking the law does not have consequences,” Weintraub said. “That has been one of the most effective legacies of Director Cordray’s leadership under the CFPB, that there have been so many enforcement actions that have really created an unequivocal message that breaking the law, harming consumers, has consequences.”
In addition to a hiring freeze, the agency suspended new regulations and is reviewing pending enforcement actions and investigations. CFPB spokesman Mayorga did not answer if the agency plans to resume or halt those investigations after the review is complete.
Meanwhile, the agency has brought on some employees with connections to CFPB opponents, including Brian Johnson, a former Hensarling aide.
“The concern I have is that the swamp might be swallowing the bureau up. I just hope that’s not true,” said Jeff Sovern, a professor of law who specializes in consumer issues at St. John’s University.
Although polls show the agency is popular with Americans, CFPB has received steady criticism from the financial services industry and Republicans, who view the bureau not as a safeguard for consumers, but an affront to the free market. At times, CFPB has also been accused of arming its director with too much authority and having an unconstitutional structure, which has been the subject of the ongoing lawsuit mentioned earlier.
Last year, the agency put in place rules affecting the payday loan industry, including a requirement that lenders must ensure consumers can repay certain short-term and longer-term loans. Jamie Fulmer, senior vice president of public affairs for payday loan company Advance America, expressed concerns that consumer advocacy groups have too much influence over CFPB.
“So what results from that is … rules and regulations that don’t benefit the consumers they’re ostensibly designed to serve,” Fulmer said. “I think that from our perspective and from the perspective of our consumers, … the bureau as it was structured under Director Cordray was fundamentally flawed and a great disappointment.”
The Heritage Foundation, an influential conservative think tank, has called for shutting the agency down, and Hensarling previously led calls for Cordray to be fired and for CFPB’s enforcement authority to be pared down.
Both the Trump administration and Mulvaney have been critical of CFPB in the past, with the president describing the bureau as “a total disaster” under Cordray. Mulvaney previously called the agency a “joke … in a sick, sad way” and suggested that it is accountable to no one.
As it is, Congress has chipped away at CFPB’s rulemaking process in recent months.
Last year, CFPB fined Wells Fargo $100 million for opening 2 million fraudulent accounts. When class action lawsuits were filed against the bank, Wells Fargo, which declined to comment for this story, argued in court that its customers had waived their rights to class action because of language known as arbitration clauses that are tucked into consumer contracts.
In 2016, the CFPB proposed a regulation that would have barred financial institutions from putting class action waivers in arbitration clauses. Congress repealed the rule last year.
Although conservatives frequently claim that the free market is sufficient to hold industry accountable, St. John’s law professor Sovern argued in this paper that the free market is ill equipped to protect consumers who have incomplete information. He also pointed out that Wells Fargo’s number of checking accounts increased despite publicity of its fraudulent accounts, suggesting the free market didn’t actually discipline the bank.
“So, the free market works very well for things consumers can understand and make a choice as to what’s best for them,” Sovern said. “But for things where consumers don’t get a choice or don’t understand their choice, … the free market works less well, and we need a substitute. One possible substitute is regulation.”