Personal Finance

Trump team is determined to rein in the Consumer Financial Protection Bureau

Key Points
  • While a federal court ruling last week means the Trump administration's hope to dismantle the independence of the CFPB are dashed for the moment, the president's push to reduce regulation is alive and well at the bureau.
  • Acting director Mick Mulvaney, who also serves as Trump's budget director, has made a variety of moves that point to an agency that's kinder and gentler — to businesses.

A legal challenge failed to strip the federal Consumer Financial Protection Bureau of its independence, yet efforts to rein in its regulatory reach are continuing full steam ahead.

Hours after a federal appeals court ruled last week against a challenge to the structure of the CFPB, the agency said it is formally evaluating its administrative judicial process for companies accused of wrongdoing.

And today, Reuters reported that the bureau is dialing back an investigation of how Equifax failed to protect millions of consumers' personal data in a massive cyberattack on the credit-reporting firm last year. A CFPB spokesman told Reuters the agency cannot acknowledge the existence of an open investigation.

In other words, the Trump administration's efforts to reduce the regulatory burden on the financial system is alive and well at the agency under acting director Mick Mulvaney.

"All of the actions we've seen [by Mulvaney] are consistent with a director who wants to take the bureau in a significantly different direction than it had been going," said Chris Willis, head of the consumer financial services litigation practice group for Ballard Spahr in Atlanta.

Consumer Financial Protection Bureau acting director Mick Mulvaney
Brendan Smialowski | AFP | Getty Images

The court decision, handed down by the D.C. Court of Appeals, ruled that the CFPB's single-director structure is constitutional and that the director cannot be fired without cause. It's unclear at this point whether the ruling will be appealed to the U.S. Supreme Court.

Critics of the agency, including Republicans and industry groups, have argued that having one person at the helm created an agency that was overreaching and unaccountable. The fact that the CFPB gets its funding from the Federal Reserve, which means Congress is unable to weigh in on the agency's budget, is another point of contention.

Mulvaney, who was named to the position by President Donald Trump after the resignation of Obama appointee Richard Cordray in November, has been reviewing or undoing some of what was implemented under his predecessor. Moves undertaken at the agency since Mulvaney took over include:

1. Suspended disbursements from its Civil Penalty Fund in late November. It initially was announced as a 30-day freeze, but it's unclear whether money from the fund — which is used to compensate wronged consumers — has resumed paying out. (CNBC reached out to the CFPB for an update on the fund and did not receive one.)

2. Requested no funding from the Federal Reserve for the second quarter, although Mulvaney pointed to a surplus that he intends to spend down before requesting more money.

3. Backed off implementing a rule requiring so-called payday lenders to make sure consumers can afford these short-term loans, which typically come with high interest rates. The agency last month said it is reconsidering the measure.

4. Started issuing a series of requests for information in January to evaluate various functions of the bureau. The most recent one was issued last Wednesday regarding the CFPB's evaluation of its judicial process. It came a week after the first one, which seeks input on how the agency demands information from companies. Next up: an evaluation of its enforcement processes. The agency says the idea is to improve outcomes for both consumers and the companies under the CFPB's jurisdiction.

5. Moved the Office of Fair Lending and Equal Opportunity out of the agency's supervision and enforcement division last week. The office had focused on pursuing cases against financial companies accused of running afoul of discrimination laws and now will focus on education, coordination and advocacy. The agency said it will continue pursuing those cases through its enforcement division.

While consumer advocates are cheering the recent court decision as confirmation that the agency was created to operate free from political or Wall Street influence, they acknowledge it's only one mark in the win column for them.

"The court is saying the head of this agency is supposed to be independent," said Paul Bland, executive director of Public Justice. "It doesn't fix everything but it's a lot better than the court not saying that."

CFPB structure upheld in blow to Trump's deregulation efforts

Bland's organization and other consumer advocacy groups have decried Mulvaney directing the agency on the grounds that he also serves as Trump's budget director in the White House and had been critical of the CFPB in the past.

At the same time, critics of the bureau have cheered Mulvaney's changes. From their perspective, Cordray was overzealous in the agency's enforcement and exercised unaccountable latitude in issuing hefty penalties against companies.

In fiscal 2017, a total of $261.9 million was distributed to 232,000 harmed consumers using the Civil Penalty Fund. Since the fund began making disbursements in 2013, about $12 billion has been paid to more than 29 million wronged consumers, according to the bureau.

My guess is that the agency will become more mainstream in its selection of issues to tackle and less adventurous … in its actions and requirements on financial industry.
Chris Willis
Head of consumer financial services litigation practice group, Ballard Spahr

With Mulvaney at the helm, there's a good chance there will be a slowing of investigations and resulting penalties, along with fewer new rules.

"My guess is that the agency will become more mainstream in its selection of issues to tackle and less adventurous … in its actions and requirements on financial industry," Willis said.

Meanwhile, a court case challenging Mulvaney's legal right to head the agency is awaiting a hearing in the same court that ruled on its structure. That lawsuit was filed by Leandra English, who was appointed last-minute to the position by Cordray when he resigned.

(Update: This story was updated to include information from a Reuters report about Equifax and the CFPB.)

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