Dodd-Frank, the CFPB, and the Trump-confronting Elizabeth Warren
The Dodd-Frank financial reform law spawned more than a raft of regulations; it also created a new regulatory arm of government: the US Consumer Financial Protection Bureau (CFPB). Five years after being formed, the bureau has more than 1,600 employees, an operating budget of almost $680m and offices in Washington, New York, Chicago and San Francisco.
Its jurisdiction covers a wide variety of financial services marketed to everyday Americans, including mortgages, credit cards, student loans and payday loans. With Donald Trump in the White House, promising to make America more business-friendly, critics of the agency see an opening to weaken the new regulator on the block.
1. What’s the case against the bureau?
Republican lawmakers and the financial industry say its scope is too broad and its powers too strong, maybe unconstitutionally so. As an independent agency within another independent agency, the Federal Reserve, the CFPB has an unusual (though not unique) level of autonomy from executive and legislative oversight.
Congress doesn’t control the agency’s budget — there’s a fund within the Fed for that — and the president can’t remove the agency’s director without cause. Even the Fed may not "intervene in any matter or proceeding" before the bureau’s director. In October, a federal appeals court ruled the bureau "unconstitutionally structured" because the autonomy vested in the director marks a "gross departure from settled historical practice". On February 16, the court granted the CFPB’s request to reconsider that decision.
2. Why was it given such autonomy in the first place?
At a 2011 hearing, a representative of president Barack Obama’s administration told a US House of Representatives sub-committee that the new bureau must be outside the normal budget process because it would need to "stand up to the most rich and powerful". That representative was Elizabeth Warren, then a Harvard University professor assisting the Obama administration in setting up the bureau.
Warren is now a US senator from Massachusetts and one of Wall Street’s biggest critics. At that hearing, she also assured lawmakers that the bureau would be highly accountable because its rules could be "over-ruled, obliterated, wiped out, negated" by another Dodd-Frank creation, the Financial Stability Oversight Council, which includes the treasury secretary, Fed chairman and other top government officials. (The bar to over-rule the bureau is very high, however.)
3. What do critics want?
Republicans in the House and Senate have introduced proposals to curb the bureau’s authority. Ideas include replacing the one-person director with a bipartisan commission, eliminating much of the bureau’s authority, giving Congress control of its appropriations — and even scrapping the bureau entirely. Lawmakers have also proposed repealing or preventing implementation of certain bureau initiatives, including one that would make it easier for consumers to sue their bank.
House Financial Services Chairman Jeb Hensarling, who has led Republican criticism, may seek to turn the bureau into a law enforcement agency, eliminating much of its regulatory power and consumer-protection mission. Some even want Trump to fire the bureau’s director, Richard Cordray, without delay.
4. Could Trump fire him?
Only if he wants a court fight. Under current law, the director serves a five-year term and can be removed by the president only "for inefficiency, neglect of duty or malfeasance in office". Cordray’s term runs until July 2018. Still, there are options. Under one legal theory, Trump could assert that the president has the constitutional power to fire the director at will. And some critics think Trump could put together a viable case against Cordray even under the current standard.
5. How does Cordray respond?
Very carefully, other than saying he has no plans to step down before his term ends. In his limited public remarks, he’s said that the bureau’s independence is "an important principle that’s worth preserving".
6. What has the bureau done so far?
It says its enforcement actions have provided $11.7bn in relief to consumers. This includes a $100m fine against Wells Fargo to settle claims over opening accounts without customer approval; a $40m fine against debt-relief company Morgan Drexen over allegedly deceptive fees; and a $28.8m settlement with Citigroup over how it handled borrowers facing foreclosure.
The agency also established a database to track consumer complaints about financial products. As a rule-maker it’s worked to make it easier for consumers to sue their banks, enact more restrictions on payday loans and improve banks’ disclosures about prepaid cards.
7. Would those cases have been brought without the CFPB?
Some, perhaps, but probably not all. Under Dodd-Frank, the newly created agency was given authority to enforce dozens of consumer financial-protection rules and orders that had previously been divided among seven different agencies, some of which had been accused of being too cozy with the financial industry while paying too little attention to consumers.
With its broader scope, the CFPB is free to explore corners of the financial system that don’t normally draw government scrutiny. One of its recent actions was a lawsuit against a hedge fund it accuses of inappropriately collecting millions of dollars from people who won damages in litigation tied to 9/11, and a National Football League settlement with concussion victims.