Banks and other financial services companies face a more assertive Consumer Financial Protection Bureau that has weathered constitutional challenges, leadership changes and political wrangling in its first decade.
The CFPB is celebrating its 10th anniversary on Wednesday, ending a tumultuous period in which it established historic mortgage rules after the financial crisis, attempted to regulate payday lenders and raised $ 14 billion through enforcement measures, all by repelling legislative and legal attempts to curb or even eliminate the agency.
The office has also seen a major shift in leadership and priorities, from a more aggressive director appointed by President Barack Obama to leaders installed by President Donald Trump who have stepped back from both development and leadership. application of the rules. The independent funding of the agency and its 1,500 employees, however, remained intact.
With its difficult growth phase out of the way, banks and other consumer finance companies will need to be on guard for strong CFPB enforcement and oversight, regardless of which party is in power, said Christine Hines, director. Legislative Council of the National Association of Consumer Advocates. .
“The industry should now be in a place where it knows there is a federal agency whose purpose is to protect consumers, regardless of political leadership,” she said.
Cop on the beat
Although Trump’s CFPB directors – Mick Mulvaney and Kathy Kraninger – were widely seen as softening the app, the office was not dormant during their tenure.
The CFPB was fined $ 500 million against
Much of the rest of the Trump-era enforcement action was aimed at petty fraudsters, and the agency removed some key rules such as tough new lending standards for payday loans.
But the CFPB did not disappear under the Trump administration. And some things, like its public consumer complaints database, have seen improvements and increased usage under Kraninger’s watch.
This is proof of the endurance of the CFPB.
“One of CFPB’s greatest accomplishments over the years is that it’s still alive,” said Allison Schoenthal, Financial Industry Group Partner at Goodwin Procter LLP.
“No one is letting their guard down right now,” she added.
The first struggles
The agency’s current stability is a marked departure from the uncertainty in which it operated during the Obama administration and the early days of the Trump administration.
The CFPB was under siege even before opening its doors in July 2011, with its opponents challenging its one-director leadership structure as unconstitutional. The Dodd-Frank Act of 2010 said the president can only fire the director for cause – not at will – which Republicans and industry opponents say gave the agency too much power. uncontrolled.
Legal arguments that the CFPB structure violates the Constitution’s separation of powers clause have found their way into corporate defenses in CFPB lawsuits. The office itself was sued by a small Texas bank and a conservative think tank in 2012.
The CFPB quickly gained a reputation for aggressive enforcement and strict oversight under the leadership of its first director, Richard Cordray, but legal challenges actually stalled the office’s work, said Jenny Lee, a former lawyer in charge of the office. application of the CFPB.
“It probably slowed down agency officials in the time it takes to make filings and respond to court arguments, of course,” said Lee, now a partner at Arent Fox LLP.
Ultimately, the United States Supreme Court ruled in June 2020 in Seila Law LLC v CFPB that the structure of the office was unconstitutional, but quickly corrected the flaw by making the manager an employee of the president at will.
While there is still active litigation over the actions the CFPB took prior to the constitutional correction, the fight is all but over, removing a complication for office staff, Lee said.
Legal challenges aside, the CFPB also faced a barrage of political opposition from its early days.
Republican lawmakers and some industry players have said the new agency is too powerful and irresponsible, noting its sole director and responsibility for 18 key consumer credit laws inherited from the Federal Reserve and other regulators.
They also pointed to the CFPB’s broad Dodd-Frank powers to tackle “unjust, deceptive and abusive acts and practices” in the financial industry. Critics also cited independent funding for the agency that went through the Federal Reserve and did not require congressional approval.
But repeated legislative attempts to turn the CFPB into a commission, sever its independent funding, and restrict its powers ultimately failed under the Obama administration. They also did not gain ground during the Trump years, even during Republican control of the House and Senate.
“They tried to break it. And they failed, ”said Senator Elizabeth Warren (D-Mass.) At an event hosted on July 19 by consumer advocates celebrating the 10th anniversary of the CFPB.
The former Harvard law professor led the Obama administration’s efforts to set up the office in 2010 and 2011 before handing over the reins to Cordray, who became CFPB director on a vacation appointment . He was only confirmed to this post by the Senate in 2013 amid intense opposition from Republicans.
The agency’s growing acceptance as a financial regulator doesn’t mean that the opposition has subsided completely, said Quyen Truong, former senior CFPB lawyer and now partner of Stroock & Stroock & Lavan LLP.
“The CFPB will continue to stand out as being subject to unusually high levels of political heat, compared to other regulatory bodies,” she said.
The office works with an interim director, David Uejio. A confirmation vote for Rohit Chopra, President Joe Biden’s candidate for full-time office manager, has been delayed for months amid Republican opposition.
For some in the industry, this highlights the ongoing risks of the office having a single director rather than a five-member commission like the Federal Trade Commission or the Federal Deposit Insurance Corp.
“Subject to the pendulum swings of changing administrations, the office’s one-director governance structure too often focuses on politics in Washington rather than the very people it was created to protect – the consumer,” Richard Hunt , chairman and CEO of Consumer Bankers The association said in a statement to Bloomberg Law.
Chopra, currently FTC commissioner, is expected to take a tougher enforcement stance than his Trump-era predecessors. It should go after consumer credit bureaus, mortgage and student loan managers and other businesses that have failed to properly track pandemic-related consumer relief.
Racial equity and fair lending should also feature prominently on Chopra’s enforcement and regulatory agenda.
For now, at least, the CFPB should have some leeway, Lee said.
“With the Democrats in the White House and their powers concentrated in the House and Senate, it will just be easier for the office to more effectively carry out its mandate in the statute, which is incredibly broad,” he said. she declared.