Wexler Wallace Associate Tyler J. Story explores how the Trump administration could have dire consequences for the Consumer Financial Protection Bureau.
Just over a week ago, Donald Trump rode a wave of populist resentment towards decades of middle-class economic malaise to become the next President of the United States. On the stump, he vowed to shake up the system and tilt the economic playing field back in favor of the American working class, and he will enter the White House with an emboldened Republican legislature eager to aggressively reshape domestic policy. But will a Trump administration mitigate the economic disadvantages plaguing ordinary Americans? Or simply exacerbate the economic order his supporters lament? If the battles currently teed-up over the Consumer Financial Protection Bureau provide any insight, the smart money is on the latter.
The CFPB is boon to American consumers. Since its inception, the CFPB has refunded $11 billion to more than 25 million consumers and levied hefty fines for anti-consumer practices—from $700 million in relief for consumers harmed by Citibank’s deceptive credit card practices to a $100 million fine imposed on Wells Fargo for opening 2 million unauthorized customer accounts. It is currently fighting to reform small-dollar, high-interest payday loans that typically compound—rather than alleviate—the financial burden felts by cash-strapped consumers. And perhaps most importantly, the CFPB recently proposed rules barring financial companies from using mandatory arbitration clauses to block consumers from banding together in class action lawsuits. The battle against mandatory arbitration, in particular, is an extremely important undertaking; it is the mechanism of choice by which large corporations can loot and pillage consumers for millions of dollars with relative impunity. That is because the types of penny-ante grifting in which banks engage, like charging undisclosed fees, are not worth pursuing in relation to the cost of bringing an individual lawsuit.
Despite these successes, a Trump administration likely portends a significant reduction in the CFPB’s consumer-friendly enforcement actions. Republicans and Wall Street have relentlessly targeted the consumer watchdog since its creation and Mr. Trump has previously indicated that he will dismantle many of the financial reforms put into place by President Obama, claiming that “Dodd-Frank has made it impossible for bankers to function.” With a complicit Republican legislature singularly focused on deregulation and intent to repeal Dodd-Frank at the behest of Wall Street, the CFPB’s future is in jeopardy.
To this end, Republicans have unveiled a number of legislative “fixes” intended to undermine the CFPB’s effectiveness. Assuming that a Republican-controlled Congress does not completely eliminate the CFPB, Mr. Trump is likely to appoint financial regulators that are more industry friendly than those appointed by President Obama. That means Richard Cordray, the current director of the CFPB, is likely to be replaced by a more business-friendly appointee; a move that will have a profound impact on the bureau’s enforcement actions going forward. Alternatively, Republican legislators and financial lobbyists have advocated the creation of a multi-person board to run the CFPB. But the appeal of a sole directorship is that it allows the bureau to focus on protecting consumers rather than engage in partisan wrangling over enforcement actions and rulemaking. For those whose interests lie in exploiting—rather than protecting—consumers, the gridlock and indecision wrought by a multi-person board will prove lucrative. And to further restrain the CFPB’s zealous consumer advocacy, Republicans will attempt to tie the bureau’s funding to the Congressional appropriations process, jeopardizing its standing as an independent regulator. Political pressure will encourage the CFPB to act in a manner that is politically expedient for lawmakers holding the bureau’s purse strings, to the detriment of consumers.
The CFPB’s precarious future is a cause for concern. While the extent to which a Trump administration will ultimately reshape the CFPB is purely speculative at this point, the incoming Republican-controlled Congress presents, at the very least, a formidable obstacle to the CFPB retaining its current form and aggressive regulatory approach. And should any one of the proposed changes materialize, it will have an appreciable effect on consumer well-being. But if Mr. Trump truly wants to fulfill his campaign promises, and if he truly wants to level the playing field for the millions of disillusioned Americans who cast a vote in his favor, he would be wise to realize that many of the people who supported his candidacy—those who feel that the system is rigged against them—are the very people that Dodd-Frank and the CFPB are designed to protect. After all, the American working class cannot reclaim its economic security if it is constantly preyed upon by corporations who place profits over people.