I love rollercoasters! But, the older I get, the more likely I am to end up with my head in a trashcan. As a consumer financial regulatory attorney, the last decade has been a rollercoaster, and my clients are feeling nauseous.
In response to the worst financial crisis in a generation, Congress passed in 2010, and President Obama signed into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation overhauled the U.S. financial regulatory landscape and established a new agency of government—the Consumer Financial Protection Bureau or “CFPB.” The function of the CFPB is to provide centralized federal oversight in consumer financial sectors, including mortgages, credit cards, student loans, and other products.
When the CFPB opened its doors in 2012 under then-Director Richard Cordray, it went from “zero to sixty” with lightning speed, aggressively regulating, supervising, and using its broad enforcement authority. Consumer advocates applauded Director Cordray’s work, while many in the industry felt like the Bureau created unnecessary twists, turns, and loops.
And in November 2017, when Director Cordray resigned, the agency’s momentum screeched to a halt and then flew in reverse. President Trump appointed Mick Mulvaney as Acting Director until the Senate confirmed Kathy Kraninger as CFPB Director in late 2018. Under both Acting Director Mulvaney and Director Kraninger, the Bureau took a less aggressive approach, backtracking on many of its ongoing projects and using its big-dollar enforcement strength more sparingly. Consumer advocates and many Democrats screamed that the wheels had fallen off, but industry players enjoyed a much smoother ride.
But, once again, the Bureau jerked in the opposite direction. On January 20, 2021, Director Kraninger resigned, paving the way for President Biden to appoint CFPB veteran Dave Uejio as Acting Director and to nominate Federal Trade Commissioner Rohit Chopra as Director. Not surprisingly, Acting Director Uejio and Mr. Chopra have committed to operating the agency on the same track as the Cordray administration with their own spin on key priorities, most notably, pandemic-related financial issues and fair lending credit discrimination.
Piloting one of the most important government agencies like a never-ending rollercoaster is dangerous and dizzying. So, how did we get on this ride? And, how do we make it stop?
The Dodd-Frank Act centralized an immense amount of power in the Director of the CFPB by establishing a five-year term that could only be terminated for cause. On top of that, the funding of the CFPB operates outside of normal Congressional appropriations, effectively making the CFPB Director one of the most influential people in the US financial sector. Courts across the country have examined the constitutionality of the agency, with different outcomes from different courts. Last year, the U.S. Supreme Court weighed in, holding that a director who cannot be removed except for cause violates the Constitution’s separation of powers. The Court, however, did not reject the CFPB outright, but rather tweaked it. This paved the way for the President to have the power to fire the CFPB Director, further cementing that the CFPB is a reflection of the President’s political leanings.
Congress created the CFPB to protect, oversee and stabilize the consumer financial markets to avoid another 2008 “crash and burn.” Almost ten years later, however, many of us are feeling sick from the whiplash, and that is terrible for consumers and businesses alike.
There have been several important policies and regulations where the Bureau raced in one direction, only to completely reverse course. For example, one of Director Cordray’s final actions in late 2017 was to issue a lengthy, comprehensive regulation addressing payday loans and other high-cost, small-dollar credit. Almost immediately after Director Cordray left, the Bureau pumped the brakes, and it officially revoked parts of the regulation last year. Meanwhile, the new CFPB leadership has expressed interest in bringing it back to life. On the other side of the track, in early 2020, Director Kraninger issued guidance on how the Bureau would examine “abusive” conduct, which Acting Director Uejio promptly rescinded. There are many more examples.
The CFPB has done a lot of good work for the American people, and it serves a necessary and important role. However, inefficiency and uncertainty get in the way of the agency accomplishing its purpose. Industry players like my clients are constantly in limbo, and that is a serious obstacle to innovation in the consumer credit markets. It takes time, resources and planning to implement changes, and even more time, resources and planning to reverse changes. Consumers are at a disservice when laws are inconsistently applied. Credit becomes more expensive for consumers when companies incur higher and unnecessary regulatory compliance costs. In addition, the policy reversals are wasting the time of the smart, dedicated and talented career CFPB employees, who spend years working on projects that are de-railed by politics.
The ticket off of this ride is a CFPB governance structure creating more stability. While executive agencies are generally shaped by the President’s agenda, the CFPB is a different beast. No other federal agency affects the consumer credit markets the way the CFPB does.
There are two easy and necessary “fixes” that need to be made immediately. First, the CFPB needs to be brought under the federal appropriations process so Congress can exercise oversight. The Bureau has no direct accountability, and that needs to be changed so the Bureau answers directly to our elected representatives. Second, the leadership structure should be a bipartisan commission made up of both Republicans and Democrats, similar to the Federal Trade Commission. Neither of these are novel concepts, and the legislation has been floating around for years. However, as with most things, politics gets in the way. This should not be a Democratic or Republican issue. Our elected officials need to recognize that the wild ups-and-downs do not benefit consumers or the industry and are no fun for any of us.
Until Congress and the President let us off this crazy rollercoaster, buckle-up!