Consumer Financial Protection Bureau

Consumer Financial Protection Bureau


Patrick Harney

Contributing Writer


From the beginning of his campaign, President Trump has had his sights set on modifying existing U.S. law for major banks and the financial sector at large. According to the then President-elect’s transition website, the goal of changing the current regulations falls under the “Financial Services Policy Implementation Team,” where its plans would be to “dismantle the Dodd-Frank Act and replace it with policies to encourage economic growth and job creation.” In this goal, Trump will have supporters in Congress, which will be led by Republican majorities in both the Senate and the House. Among some of the most outspoken critics of the Dodd-Frank Act include House Rep. Jeb Hensarling (R-Tex.), who chairs the House Financial Services Committee, and Sen. Tom Cotton (R-Ark.).

Cotton, who hosted a two-day speaking event for supporters with fellow lawmaker Rep. Trey Gowdy (R-S.C.) in early December 2016, touched on a desire to change the structure of the Consumer Financial Protection Bureau. According to a story on the event as covered by the Washington Post, Cotton found the structure of the Bureau to be at odds with oversight, noting how “it is exempt from congressional budgeting and it simply declares to the Federal Reserve how much money it wants.”

Cotton’s remarks on the funding structure of the CFPB dovetail with an earlier ruling by the U.S. Court of Appeals for the District of Columbia, which issued a ruling on the structure of the bureau being unconstitutional. According to the D.C. court’s website, the decision was reached on October 11, 2016, between the PHH Corporation and the CFPB. In a summary of the case, PHH, a New Jersey-based mortgage company argued against the constitutionality of the CFPB, after being fined for $109 million. The levy came as a result of the CFPB charging PHH with allegedly participating in an illegal kickback scheme, according to a New York Times story covering the court’s ruling.

As a result of the court’s decision, the CFPB is now a prime target for the Republican-led Congress and the Trump administration. This makes for a unique contrast to the bureau’s founding, back in the Summer of 2010, when the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed by President Barack Obama.

This particular piece of legislation, passed along party lines in a Democratic-majority Congress, included a number of safeguards built in to avoid the possibility of another economic recession following the 2008 crisis. Aside from the Consumer Financial Protection Bureau, several other measures were passed, including the Volcker Rule, designed to prevent trading and investments in from banks that did not directly serve their customers. Additional measures included governmental oversight on general financial stability, expansion on laws relating to liquidation of large companies dealing in insurance or banking, transferences of power to institutions such as the Federal Reserve and additional consumer protection oversight, according to the Library of Congress’ webpage covering the legislation.

The Consumer Financial Protection Bureau exists under the Consumer Financial Protection Act of 2010, located under Title X of the Dodd-Frank Act. However, before it was a fully funded federal outfit, it began as an idea from Senator Elizabeth Warren (D – Ma.), who was a professor at Harvard specializing in bankruptcy prior to her winning a Senate seat in 2012. In Warren’s view, having some regulation in the financial and mortgage sectors would go a long way towards preventing at-risk borrowers from getting swamped by debt. This came about due to confusing language and complexities in credit card agreements and other financial lending practices, according to the article “Unsafe at any Rate.” The article, published in the Democracy Journal in the summer of 2007, was written by Warren, which marks it as one of the first examples of her advocacy for oversight into financial lending practices.

In Warren’s opinion, buying a mortgage should be like buying a toaster, noting how, while “it is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” the same cannot be said for mortgages. Warren notes how a family can refinance a home with a mortgage that would “have the same one-in-five chance of putting the family out on the street-and the mortgage won’t even carry a disclosure of that fact to the homeowner.”

Even though her initial title for the group was the “Financial Product Safety Commission,” it nevertheless began to take shape. Obama added the central idea to his plans for overhauling financial regulations in June of 2009, before getting included with additional rules in Dodd-Frank.

Once the Act was passed, the CFPB was up and running, with Warren as the leader of the group.

However, due to intransigence from Republican and several Democratic lawmakers, it was clear that Warren’s nomination would not pass the Senate with the votes required. Therefore, Richard Cordray, who was initially selected to lead enforcement efforts on behalf of the bureau, was soon elevated in her place as the nominee to lead the CFPB.

Opposition to the CFPB began almost immediately, due in part to the method in which Cordray was appointed.

According to a January 2014 article by the Washington Post covering the formation of the bureau, the opposition came from Republican Senators, who refused to hold a vote on Cordray for six months, citing the belief that “the bureau should be headed by a commission instead of a director.”

Following the opposition to voting on Cordray’s appointment, and President Obama’s decision to install him after six months as a recess appointment, there was a series of public statements against the CFPB by lawmakers, in addition to financial entities refusing to comply with decisions issued by the bureau, citing its lack of authority as a method to avoid paying fines or to comply with rulings.

Eventually, Cordray was approved by the Senate in July regarding his appointment in a 66-34 vote in favor, allowing the CFPB to continue its work without a cloud of illegitimacy undermining it. The vote came about from former Senate Majority Leader Harry Reid, who threatened to eliminate the supermajority needed for a Senate filibuster.

However, even after Cordray was approved, there were challenges being issued by those getting targeted by the bureau, with PHH Corp. being the most successful, having managed to get the D.C. Court of Appeals to declare the structure of the organization as being unconstitutional.

While it did lead to the bureau’s dissolution, as many opponents had hoped, it did remove the autonomy of the group as a whole, making the director answerable to the President.

The director of the bureau was initially only capable of being removed from the office “for cause,” otherwise known as a breach of the statute, according to the original language in the legislation. However, due to the decision from the Court of Appeals, President Trump will have more leeway to replace the director as he sees fit.

Another concern among proponents of the bureau involves funding.

The budget for the Bureau originates from within the Board of Governors of the Federal Reserve. As a result, it boasts an autonomy which few other agencies possess, immune from Congressional funding and Presidential whims. This mirrors the Reserve itself, which is answerable to Congress, although their Board of Governors are appointed to 14-year terms, thus removing political pressures.

However, efforts to put the bureau under Congressional committee funding may come to fruition, as proposed by the House Financial Services Committee. This would include doing away with the director’s power, instead leaving its administration to a bipartisan five-member committee, similar to other regulatory bodies, such as the Securities and Exchange Commission. As for funding, there is the possibility that the bureau, if it were to receive funding from Congress, could lose the ability to attract top-tier talent.

In an article written on the bureau by Bloomberg, Adam Levitin, a professor at Georgetown University’s Law Center, was quoted as saying how Congressional funding could strip the budget, and bureau salaries, making it harder for recruitment purposes. If funding were solely reliant upon Congress, Levitin stated how the ability to attract top-tier talent “could change on a dime.”

Given the challenges ahead, it is clear the CFPB may not have as much influence as it once did in the previous eight years. The possibility of its current powers getting rolled back is likely, although its initial founder, Elizabeth Warren, remains committed to fighting against any encroaching changes in the Senate.

Furthermore, while the decisions the Trump administration will be making with Congress on Dodd-Frank may have far-reaching consequences for future regulation and enforcement actions, there is little chance of rescinding prior decisions by the bureau, due to many of the current decisions being settled.


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