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03.09.17

What Will Happen to the CFPB?

By Bill Grabarek, Senior Editor

Since Donald Trump was elected president and the GOP maintained control of the House and Senate, several Republican legislators have doubled down on past—and under Obama, largely symbolic—efforts to make changes to the CFPB.

The one thing that came close to chinking the bureau’s armor prior to President Trump’s election happened in the courtroom not Congress. The October 2016 ruling in the lawsuit PHH Corp., et al. v. Consumer Financial Protection Bureau deemed the CFPB’s single-director structure unconstitutional. The court allowed the CFPB to continue operating; however, the court eliminated the proviso in the Dodd-Frank law, which created the CFPB, that the agency’s director can only be removed for just-cause and that the CFPB will not operate as an independent agency, but as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury. On Feb. 16, the U.S. Court of Appeals for the District of Columbia Circuit granted the CFPB’s request for an en banc hearing re-examining the court’s decision.

On the legislative front, I expected to see Republicans huddle up and mount a concerted attack on the bureau, say, in the form of the resurrection of the Financial CHOICE Act introduced to the House last year by U.S. Rep. Jeb Hensarling (R-Texas). The bill sought to eliminate CFPB Director Richard Cordray’s position and replace it with a bipartisan, five-member commission; subject the agency to congressional oversight and appropriations; and annul its authority to prohibit arbitration; among other mandates.

But rallying around a single strategy to change the CFPB isn’t what’s happening. Instead, we’ve seen legislators taking a shotgun approach in the form of multiple bills, joint resolutions to repeal the bureau’s prepaid accounts rule and even a Hensarling U-turn on his proposal for CFPB leadership. He now favors a single director answering directly to the president. (See details in the sidebar.)

All of this is enough to make my head spin and to quote former U.S. Secretary of Defense Donald Rumsfeld when he spoke in 2002 about evidence of Iraq supplying terrorists with weapons of mass destruction: “There are things we know we know. We also know there are known unknowns.”

What We Know; What We Know We Don’t Know

We know the days of the CFPB operating as it does today are numbered, and we know Cordray’s seat is mighty hot. OK, maybe we don’t know these things, but chances are pretty good. Beyond that, we know what we don’t know—how all this will pan out. I’ve turned to three industry experts to get their takes.

When the new administration came in, many people thought the CFPB would be the first agency on the chopping block, according to Judith Rinearson, partner, K&L Gates LLP. But at this point, there seems to be a lot of mixed messages about the agency, she says. Rinearson also questions how high the CFPB even is on the to-do list. “In his recent speech to Congress, Trump failed to mention either the CFPB or Dodd-Frank as he listed goals for his administration,” Rinearson says.

Timeline: An Agency under Attack

  • Jan. 11—President-elect Donald Trump met with former U.S. Rep. Randy Neugebauer, a possible candidate to lead the CFPB.
  • Jan. 11—Sen. Deb Fischer (R-Neb.) introduced legislation (S 105) that would replace the director with a five-member board appointed by the president and confirmed by the Senate.
  • February—Two joint resolutions in the House (HJR 6273) and one in the Senate (SJR 19) take aim at the CFPB’s final prepaid accounts rule, and not the bureau itself. The resolutions use the previously seldom-used Congressional Review Act to repeal the rule.
  • Feb. 14—Republicans Sen. Ted Cruz and Rep. John Ratcliffe, both Republicans, introduced companion bills (S 370 and HR 1031) that would repeal Title X of the Dodd-Frank Act, which created the agency. (Happy Valentine’s Day, Director Cordray.)
  • May 24—Oral arguments are scheduled for the en banc hearing in the PHH case.
  • July 2018—Richard Cordray’s term as CFPB Director expires.

The Republicans’ scattershot approach to eliminating or overhauling the CFPB “reflects the fact that many of them are just positioning themselves to be part of the debate later this year or next year about what can and should be done to the CFPB,” says Alan S. Kaplinsky, partner, Ballard Spahr LLP. “With so many other priorities for the Trump administration, I frankly don’t think they have had the time to settle on a uniform approach.”

Kaplinsky doubts Trump will try to remove Cordray before the director’s term ends next year unless the rehearing of the PHH lawsuit ruling doesn’t go the CFPB’s way. Democrats will try to negotiate a compromise once they believe Trump is in a position to replace Cordray, and that compromise will be a CFPB managed by a five-member commission rather than a single director, he predicts.

Among the wide-ranging proposals for changing the CFPB, the one constant theme is that the bureau should be more accountable to Congress, more transparent and should not stifle innovation or limit consumer choice, according to Eric Love, associate, K&L Gates LLP, and a former Congressional staffer. Given the high probability of Democratic opposition to efforts to reform the CFPB, “and the reality that such a proposal will likely be required to garner 60 votes to overcome a filibuster in the Senate, proposals to make substantial revisions to the CFPB’s operations and structure certainly appear less viable than the more narrowly tailored reform proposals that seek to enhance accountability at the CFPB while leaving the agency’s fundamental structure in place,” Love explains.

While the Republican strategy, if one exists, remains clear as mud, the industry must wait for all these unknowns to become knowns.

Bill Grabarek is a senior editor at Paybefore, where he’s been covering prepaid and emerging payments for seven years. Bill is a seasoned (a little salty) editor, writer and manager with 20 years of experience in print and online newspaper and trade publications, including Credit & Collections RiskISO&Agent and AccountingWEB. He can be reached at bgrabarek@paybefore.com.

In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.

This entry was posted on Thursday, March 9th, 2017 at 11:22 am and is filed under Op-Ed.

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