The CFPB’s Uncertain 2017

If asked in September about what kind of year 2017 was going to be, CFPB officials most likely would have spoken mostly about their ongoing plans to make the world a better place for consumers.

A heated battle over its funding structure and leadership structure probably would not have come up.

But then, the world in Sept. 2016 and what it was anticipating for Jan. 2017 is quite a bit different than the actual Jan. 2017 that began two days ago.

The CFPB has been controversial since its start, particularly the wide-ranging and nearly unchecked powers of its director (currently Richard Cordray) and a funding structure that leaves it largely independent of congressional oversight since it doesn’t need them to fund what it does. But given that most pundits and professional politics watchers were predicting a third Democratic president, if anything, most were predicting business as usual.

That calculus all went straight out the window on Nov. 8 when Donald Trump — an avowed opponent of Dodd-Frank, which gave the CFPB its life — actually won the White House. Among his earliest promises? Dismantling Dodd-Frank.

Things for the CFPB, according to a variety of recent reports, look a good deal more uncertain, as its enemies in Washington are myriad.

“The CFPB is an unaccountable bureaucracy rife with racial discrimination that churns out regulations that harm consumers, especially those with low and moderate incomes,” Jeff Emerson, a spokesman for House Financial Services Committee Chairman Jeb Hensarling, said in an email to PYMNTS. “Effective consumer protection requires providing Americans with the information they need to make informed decisions, policing markets for fraud and deception and promoting competition and choice among financial products and services.”

Apart from the enduring antipathy of the head of the House Financial Services Committee, the incoming president and over half of the United States Senate, the agency also faces attacks from a variety of angles that make it seem highly plausible, if not likely, that some very big changes could be on the horizon. And, in a perhaps stranger reversal, it seems the CFPB’s ally in its existential fight might end up being the banks it’s been fining for the last several years.

Removing The Director 

While any number of bloggers have recommended that President Trump take up his old catchphrase and tell CFPB Director Richard Cordray, “You’re fired,” the CFPB by design makes that move a bit of a challenge. According to its enabling legislation, the president may only remove its director for “inefficiency, neglect of duty or malfeasance in office.”

Cordray, a former Ohio attorney general, has been referred to as “squeaky clean” by fans, who characterize this recent search for cause as something of a witchhunt. Opponents, however, have pointed to a series of at least questionable instances under his stewardship at the CFPB, including accusations that pay discrimination against women and minority employees was rampant at the CFPB and that Cordray was aware of the issue and failed to take action to change it.

Also an area of concern is the way in which the bureau used various types of statistical modeling to prove alleged racial discrimination in auto lending. The CFPB’s methodology was questioned, and the agency was accused by Republicans of overstepping the authority awarded to it by Congress. There were also questions about how and when information was shared between the CFPB and various consumer advocacy groups.

“Mr. Trump is looking at all of his options when it comes to changing the leadership,” said John Allison, the former BB&T Corp. chief executive officer who met with the President-elect last month to discuss banking regulations. “He thinks the CFPB symbolizes the worst part of Dodd-Frank.”

Some, however, have noted that acting directly against Cordray may not be necessary at all, since the courts may render the question of his position null and void.

The Legal Challenge

In October, in a bit of foreshadowing of the difficult year coming up, the bureau lost a challenge in front of a three-judge panel of the D.C. Circuit U.S. Court of Appeals. The court ruled that the agency’s independent director as created by Dodd-Frank is both unprecedented and unconstitutional. The court also offered two possible remedies. The first is that the CFPB retain its independent nature but be governed by a bipartisan board — à la the FTC. The other is that the agency retain its director but that the director serve at the will of the president, meaning he can be fired for any reason the sitting federal executive sees fit.

The CFPB has appealed that ruling, which is now before the U.S. Court of Appeals for the D.C. Circuit. The outcome of that case — and whether it continues up the chain to the Supreme Court — is being actively watched by both CFPB cheerleaders and jeerleaders.

Funding Challenges 

Instead of going after the CFPB leadership, some Republicans in Congress have instead advocated using procedural tactics to circumvent Democrats and make the regulator’s budget subject to congressional approval. Sen. Pat Toomey (R-PA) noted that a fast-track budget reconciliation bill can’t be blocked by fillibuster and could have a rider that essentially takes the CFPB’s funding out from the under the Federal Reserve.

Right now, the CFPB essentially sets its own budget, estimated to be $606 million in 2016, through funding from the Federal Reserve. However, some Republicans are hesitant to use this, noting it would be a tough way to start the term since it would essentially give Democrats a reason to strike back and filibuster any attempt at modifying Dodd-Frank.

“It would be a mistake to use the reconciliation process,” Senator-Elect Chris Van Hollen (D-MD), who is joining the Senate Banking Committee, said in an interview. “That would get us off to a bad start in terms of an effort to work on a bipartisan basis.”

The Big Bank Wild Card 

Though it would be inaccurate to say that banks have emerged as the CFPB’s vociferous champions during the rapid onset uncertainty, they have been less enthusiastically cheering its wholesale destruction than one might anticipate given the volume of massive fines it has handed out over the last half-decade.

Banks would like to see the structure of the agency reset some, particularly away from a single powerful director and more toward a FTC-like bipartisan board. However, bankers are not terribly enthused to see the bureau wholesale euthanized, as they don’t wish to seem hostile to consumer protection in general.

For the time being, however, the CFPB’s future is highly uncertain, as is the future of the legislation that enables it. And, according to internal sources, the mood at the agency is less than cheerful about the future.

“Morale is just really bad at the agency. People are crying,” said Deepak Gupta, a lawyer and consumer advocate who previously worked at the CFPB.