The Consumer Financial Protection Bureau regulates companies that offer student loans, mortgages and credit cards. The agency was formed after the 2008 financial Crisis and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. The Act created the Consumer Financial Protection Bureau for Consumer Protection in the financial sector.
- The power struggle
Today the CFPB’s future is uncertain and is currently in jeopardy as a power struggle between Democrats and Republicans could permanently weaken it. A messy battle between the Trump administration and the agency’s recently departed director; Richard Cordray has led two people claiming to be its acting director. On November 24, 2017 Richard Cordray resigned earlier than planned and appointed Leandra English to be acting Director. On November 25, 2017 The White House and former director each claimed legal right to name acting director. The skirmish over the acting director role centers on the language in the 2010 Dodd Frank Act and whether it supersedes the 1998 Federal Vacancies Reform Act.
President Donald Trump and his allies say the 1998 law gives him the authority to make the appointment rather than Cordray, who was nominated by President Barack Obama to head the independent agency. The general counsel for the CFPB sided with the Trump administration on the matter.
Trump soon followed suit by naming Mick Mulvaney, the director of the Office of Management and Budget, as the acting director until a Senate-confirmed nominee can take over.
On November 26, 2017 English filed a lawsuit to block Trump’s nominee and both English and Mulvaney changed their signature lines to “acting director”. English sent an all-staff email thanking employees for their service. Later that week a judge ruled in favor of the Trump administration. The dispute is whether “absence” or “unavailability” in Dodd-Frank means a vacancy, as is the case here.
- Background
There has been much controversy since the agency was formed. A 2013 press release from the United States House Financial Services committee criticized the CFPB for what was described as a “radical structure” that “is controlled by a single individual who cannot be fired for poor performance and who exercises sole control over the agency, its hiring and budget”. Its regulatory activities include investigating hundreds of thousands of complaints from consumers of financial institutions, reformed mortgage lending, retirement and investment scams that target the elderly and abusive debt collection practices amongst other things. The bureau has accomplished two big changes. In 2013, it set standards for the mortgage market, requiring most lenders to verify the borrower’s income and ability to repay loans and discourage many types of mortgage products that included “teaser” interest rates that led to some of the worst abuses of the financial crisis. In October 2015, the Bureau simplified the disclosures that borrower’s receive when they take out a loan. The new disclosures were made to make it easier for consumers to compare mortgage terms and products.
- The Financial Burden
Since the Bureau implemented the Dodd-Frank Wall Street Reform and Consumer Protection Act that took effect July 21, 2010, it immediately caused a sharp partisan division. The staggering large legislation of 2,300 pages drove many companies out of the mortgage industry and causing a credit crunch. The Dodd-Frank Act mandates significant requirements for traditional lenders and private money lenders to approve loan requests. As a result, millions of borrowers can’t qualify for home loans. Many smaller companies and brokers have exited the mortgage industry as a result because they can’t afford the cost of compliance with the Dodd-Frank Act. This leaves potential homebuyers with fewer options for financing. Hard Money lenders and small banks should be exempt from Dodd Frank Act to help the economy and allow millions of families to realize their dream of homeownership. As Private Money Investors we do not sell loans on the secondary markets like mega banks do. Hard Money lenders use their own money to finance one’s homestead and will not finance a home if they do not believe the borrower has the capacity to repay.
- The Outlook
The newly appointed Jerome Powell, Trump’s nominee for chairman of the Federal Reserve was sworn in Tuesday during a Senate hearing. Powell, a federal governor since 2012, defended the Fed’s approach to financial regulation. He told republicans he did not favor rolling back most of the existing regulations and did not see a need for stronger rules, although did endorse easing the burden on smaller banks. He also pledged to continue the Fed’s approach to monetary policy, by gradually raising interest rates so long as economic growth remains healthy. On regulation, Powell stated that the post-crisis changes have made the financial system stronger but that those regulations were unnecessarily uniform. He favors reduced regulation for smaller banks, “Tailoring of regulation is one of our most fundamental principles. We want it to decrease in intensity and stringency as we move down” he said. This has created friction with Democrats who continue to see a need for stronger regulations.
As far as the power struggle continues, both dueling directors embody widely different visions regarding the future of the agency. We are uncertain what will happen to the CFPB but what is for sure is a long and confusing political fight.
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