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The Future of the CFPB Under the Trump Administration



Update (2/16/17):  The U.S. Court of Appeals for the District of Columbia granted the CFPB's request to reconsider its earlier ruling with respect to the President's ability to remove the Director of the CFPB. This ruling provides a glimmer of hope for the continuity of the CFPB’s leadership. Oral argument is set for May 24, 2017.

Ever since its inception as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) has faced heavy criticism. Many believe the CFPB lacks accountability and engages in improper "regulation-through-enforcement" tactics. One of the CFPB's biggest critics, House Financial Services Committee Chairman Jeb Hensarling (R-Texas), has stated:

"The CFPB undoubtedly remains the single most powerful and least accountable Federal agency in all of Washington. When it comes to the credit cards, auto loans, and mortgages of hardworking taxpayers the CFPB has unbridled, discretionary power not only to make those less available and more expensive, but to absolutely take them away."

Interestingly, U.S. bank stocks have jumped significantly since the election of Donald Trump, partly due to the belief that the President-elect will dismantle the CFPB and/or eliminate the CFPB's expansive enforcement authority under Dodd-Frank. During his campaign, Mr. Trump did not expressly endorse any plan to abolish or alter the CFPB, but he did propose significant changes to Dodd-Frank (which created the CFPB). In part, Mr. Trump stated that "Dodd-Frank has made it impossible for bankers to function" and that his proposed changes "will be close to dismantling of Dodd-Frank." Mr. Trump's nominee to head the Treasury Department, Steven Mnuchin (formerly of Goldman Sachs), has also announced a desire to scrap the parts of Dodd-Frank that prevent banks from lending.

Rather than trying to repeal the entirety of Dodd-Frank (which is very unlikely), it is expected that lawmakers will make minor tweaks to Dodd-Frank to benefit small and regional lenders and to rein in the CFPB's unchecked powers. Many believe that House Republicans will move forward with a "CFPB makeover" in early January to adjust the CFPB's leadership structure and the agency's ambiguous authority to prosecute "unfair, deceptive, or abusive acts or practices" (which are commonly referred to as "UDAAPs").

To complicate matters for the CFPB, the U.S. Court of Appeals for the District of Columbia recently declared unconstitutional a law stating that the Director of the CFPB can only be removed by the President for "cause." The current Director of the CFPB, Richard Cordray, has a well-known reputation for aggressively pursuing banks and other non-bank financial businesses that engage in activities harmful to consumers. This court decision potentially opens the door for Mr. Trump to remove the CFPB's zealous Director soon after his inauguration in January. A looming question remains whether Mr. Trump will replace the CFPB's consumer-friendly Director with a new Director who is more favorable to corporate America.

Put simply, the future of the CFPB is uncertain and many expect the CFPB to assume a less aggressive enforcement stance going forward. As such, the CFPB may choose to focus its attention on clear cut violations of the law, such as those under the Truth in Lending Act and the Fair Credit Reporting Act. This new focus would steer away from the CFPB's controversial history of placing an emphasis on the ambiguously defined "unfair" and "abusive" elements of UDAAPs.

Although a complete repeal of Dodd-Frank and abolishment of the CFPB is very unlikely, many expect to see legislative efforts to rein in the CFPB's unchecked powers and to lift a number of Dodd-Frank rules that have burdened small and regional banks. If Mr. Trump's first month as President is anything like his campaign, we can only expect the unexpected.

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