On the campaign trail, President-elect Donald Trump made his disdain for the 2010 Dodd-Frank financial reforms clear, leaving many to wonder what a Trump White House would mean for the Consumer Financial Protection Bureau the financial services regulator created by the 2010 legislation. Now that pieces are beginning to fall into place for the Trump transition plan, the outlook for the CFPB does not appear very bright.
Will CFPB Be Dismantled?
Even before the CFPB launched in 2011, its been opposed by many in the financial industries, and by the lawmakers they back.
While the hard line against the CFPB has called for Congress to dismantle the agency entirely, that could prove too difficult as it would likely require legislation that would not survive a Democratic filibuster in the Senate.
Ed Mierzwinski, of the US Public Interest Research Group recently told reporter Bob Sullivan that anti-CFPB lawmakers will probably try to get around a filibuster with smaller legislative efforts that chip away at the Bureaus authority and its ability to enforce rules deemed too-restrictive on banks.
He points to recent attempts by these lawmakers to damage the CFPB via riders on appropriations bills that sought to eliminate independent funding, convert it to a commission, and delay enforcement of rules on payday lending and forced arbitration. Those efforts never bore any fruit because of the threat of presidential veto and the lack of numbers in the Senate to override that veto.
One of the most vocal opponents of Dodd-Frank, and of the Bureau and its Director Richard Cordray, has been Rep. Jeb Hensarling (TX), Chairman of the House Financial Services Committee, and potential nominee for Treasury Secretary in the upcoming administration.
Hes also, one of the most bank-backed members of Congress. According to the Center for Responsive Politics, Hensarling was second only to Speaker of the House Paul Ryan among House members in receiving campaign contributions from commercial banks, and his PAC received more contributions from this sector than any other House member. In all, Hensarlings campaign and his leadership PAC received around $1.9 million from the financial and real estate industries for the most recent election cycle, accounting for nearly two-thirds of all money raised for the Congressman.
Even if Hensarling is ultimately not named Treasury Secretary, his influence is already being felt. As the Wall Street Journal notes, much of the financial reform policy coming out of the president-elects team is virtually identical to legislation that Hensarling has previously proposed, some of which involves changes that would significantly blunt the Bureaus fangs.
Changes At The Top
Arguably the most significant looming change to the CFPB comes not from the Trump camp or from anti-CFPB members of Congress, but from the courts.
Director Richard Cordray has been a controversial figure since President Obama used his recess appointment power to install the former Ohio attorney general as CFPB head more than four years ago. The move so upset some members of Congress that Hensarling and others refused to hear testimony from Cordray until he was vetted and approved by the legislature. Cordray was, after more skirmishes in the Senate, eventually confirmed for a five-year term in mid-2013.
In theory, he could remain as CFPB Director until that term runs out in 2018, but a recent federal appeals court ruling has called that authority into question.
In an effort to maintain the independence of the CFPB Director, the position is unique among federal regulatory agency heads. Agencies are usually headed by either a single director who can be removed at whim by the president, or by a multi-commissioner panel where its not as simple to remove an official.
At the CFPB, there is a single Director, but he cant not be dismissed at will by the president, only for cause. The reasoning is that this shields the CFPB Director from pressures that regulated parties might try to put on the executive or legislative branches of the government.
While there is no law explicitly stating that a federal agency must be run by either a sole director that can be changed at the discretion of the White House or a multi-commissioner panel with term limits, a federal appeals court recently concluded that the CFPBs peculiar structure is unconstitutional because it concentrates too much authority in one person who is not directly answerable to the president once in office.
If that ruling stands, it would mean that Cordray will likely be packing up his desk in late January. The law allows for his Deputy Director to assume the head position if Cordray exits before his term ends, but the White House will likely have a replacement in mind if they believe the appeals court ruling will survive.
People weve talked to in DC believe that the Trump administration would likely name an interim director to head up the Bureau while allies in Congress try to pass legislation that would restructure the CFPB leadership to a multi-member commission.
The other important change that anti-CFPB legislators have wanted is to make the CFPB more accountable to lawmakers by having its funding come through Congress rather than independently from the Federal Reserve. This revision to the Bureaus structure has been proposed a number of times over the last five years, but has never been taken as a serious possibility until now.
Bank-backed lawmakers have tried to de-fang the CFPB in recent years by forcing the Bureau to delay enforcement or redo research on controversial issues like payday lending and forced arbitration.
Some marquee regulations like the long-awaited final rules on using arbitration in financial services are still pending, and their future remains in doubt if Cordray leaves or is removed.
The Hill reports that the CEO of the Credit Union National Association wrote to Cordray earlier today, calling on the Bureau to press pause on many pending CFPB rules. Additionally, President-elect Trump has pledged to put a moratorium on new agency rulemakings once he takes office.
CUNA contends that this is the will of American voters, who do not feel their voice is being heard by federal policymakers and they want that to change.”
The court-appointed receiver for a group of interrelated companies sued by the CFPB in September 2014 for engaging in allegedly unlawful online payday lending activities has filed a malpractice lawsuit against the law firm that assisted in drafting the loan documents used by the companies.
The companies sued by the CFPB included entities that were directly involved in either making payday loans to consumers or providing loan servicing and processing for those loans. The CFPB alleged that the defendants engaged in deceptive and unfair acts or practices in violation of the Consumer Financial Protection Act as well as violations of the Truth in Lending Act and the Electronic Fund Transfer Act. According to the CFPBs complaint, the defendants unlawful actions included providing TILA disclosures that did not reflect the automatic renewal feature and conditioning the loans on the consumers repayment through preauthorized electronic funds transfers.
According to the receivers complaint, the companies payday lending was initially done through entities incorporated in Nevis and subsequently done through entities incorporated in New Zealand. The companies loan servicing and processing (including customer service) was done through two entities that were incorporated in Missouri and maintained offices, employees, and mailing addresses in Missouri.
The receiver alleges that the law firm assisted in drafting the loan documents which, on their face, violated the TILA, EFTA and CFPA. He claims that the law firm committed attorney malpractice and breached its fiduciary obligations to the companies by failing to advise them that because of the US locations of the servicing and processing entities, the loan documents used by the companies had to comply with the TILA and EFTA, and that once the CFPA went into effect, the servicing and processing entities could also be liable for such violations as covered persons under the CFPA.
The election of Donald Trump and the new administration means a changed political reality for the Consumer Financial Protection Bureau (CFPB). The President-elect is expected to replace Director Richard Cordray as head of the CFPB soon after taking office. Looking further ahead, the Republican majority in Congress will likely revive legislation aimed at changing the CFPBs structure to a bipartisan commission and subjecting its budget to the congressional appropriations process.
The agency, however, will probably survive. Despite Trumps promises to replace Dodd-Frank, an attempt at wholesale repeal is unlikely. Repealing legislation likely would not survive a Senate filibuster, and redistribution of the rulemaking, supervisory and enforcement authorities now concentrated in the CFPB would involve significant frictional costs.
The impact of the election results on the CFPBs current regulatory agenda is less clear. Trumps election, and the overwhelming reelection of congressional Republicans, can be interpreted as public support for a more limited government and general dissatisfaction with the growth of the administrative state. As the CFPB reviews its current rulemakings, the payday lending rule, initially proposed on June 2, merits particular concern. As currently drafted, the proposed rule is broadly preemptive of existing consumer lending laws in 36 states.
The proposed rule, which covers payday loans, title loans and certain installment loans, contains a detailed set of borrower suitability requirements, presumptions and restrictions on loan frequency. The primary focus is on preventing extended periods of indebtedness on covered loans. The CFPB has posited that payday borrowers often roll over or renew their loans multiple times because lenders do not underwrite based on an ability to repay and typically require repayment in a single pay cycle. The proposed rule offers lenders two options for making account-secured, short-term loans: (1) confirm that the borrower can repay the loan in full and on time and still meet basic living expenses and major financial obligations; or (2) cap the loan amount at $500 and limit the borrower to two rollovers with a mandatory one-third principal payoff on each rollover.1 The second option is available only with respect to borrowers who do not have an outstanding short-term covered loan and have not been in debt on short-term loans for more than 90 days in the previous 12 months.
State financial regulators have expressed concern that the proposed rule will upend the regulatory regimes they administer. The CFPB has downplayed these concerns, describing the relationship between the proposed payday lending rule and existing state law as an unremarkable example of conflict preemptiona federal floor above which the states are free to regulate.2 That structure has long been accepted with respect to securities and environmental regulation, but there is a discontinuity between traditional conflict preemption and what the CFPB is currently proposing. The highly prescriptive CFPB rule will, upon implementation, encounter 36 complex and varied state financial regulatory regimes, most of which were developed over decades and informed by continuing state-specific, on-site supervision of consumer lenders. State laws that offer consumers greater protection than the CFPB rule will survive, but the CFPB has offered only one example of such a law: a usury cap that effectively bans payday loans. It is not at all clear how any state regulatory system that allows regulated payday lending will remain intact post-implementation.
This uncertainty has been a pressure point for the Bureau and the subject of legislation, called the Accounting for Consumer Credit and Encouraging State Solutions (ACCESS) Act3, introduced in the House by Colorado Representative Scott Tipton. The ACCESS Act would allow any state or sovereign tribe to petition for a waiver from the CFPB rule. The bill was referred to the House Financial Services Committee, where it has remained. It could, however, inform reinvigorated Republican legislative efforts to curb the CFPB.
There are also questions of statutory authorization for the Bureau to consider. The Bureaus proposed payday lending rule is an attempt at preemption by administrative regulation rather than by statute. Dodd-Frank does not grant the Bureau express authority to issue rules preempting state law on a national basis; the Bureau has inferred this authority from congressional silence. It is questionable whether Congress, post-Obama, will approve that inference, however. Dodd-Frank is an essentially anti-preemption statute.
Where Congress did address regulatory preemption in the text of Dodd-Frank, it acted to limit, not expand. The statute explicitly curbs the Office of the Comptroller of the Currencys (OCC) issuance of nationally preemptive rules. The OCC may now issue such rules only on a case-by-case and state-by-state basis and subject to heightened judicial scrutiny.4 If Congress intended, in the same legislation, to empower the CFPB, acting through a single individual, its Director, to override the consumer lending laws of 36 states, it would be expected to do so in the statutory text. In the absence of text, an agency interpreting the silence as authorization should be expected to explain itselfsomething the CFPB has not done.
Regulatory preemption of state law raises federalism concerns that have been the focus of bipartisan executive directives dating back to the Reagan Administration. Of those directives, the most detailed is President Clintons Executive Order 13,132, which was based on, and superseded, a similar Order by President Reagan.5 Executive Order 13,132 requires federal executive agencies considering preemptive regulations to obtain input from state officials in accordance with a formal, accountable process and document the results of that process in the Federal Register publication of each covered rule.6 Additionally, Executive Order 13,132 requires agencies to restrict preemption to the minimum level necessary to achieve regulatory objectives.7
Although independent agencies are expressly urged to comply with Executive Order 13,1328, they are technically exempt. By its terms, the Order applies only to executive agencies. Traditionally, federal agencies have been classified as either independent or executive based, in part, on whether their directors were removable by the President at will or only for cause. The CFPB, in addition to being expressly included in the definition of independent regulatory agency for purposes of Executive Order 13,1329, was set up with a for cause removal provision.10
The CFPB was thus entitled to exemption from the Order and has chosen not to comply. The Bureau has established no formal process for engaging state officials on rulemakings, though it has such processes in place for supervisory and enforcement matters. In the Federal Register publication of the proposed rule, the Bureau describes its interaction with state officials as a series of calls and meetings, but the only discussion topic mentioned is a narrow onethe operation of state-wide payday lending databases adopted in some states.
The October 11 decision of the US Court of Appeals for the DC Circuit in PHH Corporation v. CFPB11 complicates the CFPBs decision to ignore Executive Order 13,132. In a three-judge decision, which may be reviewed en banc by the full Circuit Court, the court struck the for cause removal provision from Dodd-Frank, making Director Cordray removable at the will of the President. The decision does not otherwise change the organization or operation of the Bureau, nor does it make the payday rulemaking subject to any new statutory requirements. The decision does, however, make the CFPBs non-compliance with Executive Order 13,132 more difficult to defend on any principled basis. By making the CFPBs director removable at the will of the President, the DC Circuit placed the CFPB on a similar footing with executive agencies that are expressly subject to the Order, and the payday lending rule as currently proposed would be broadly preemptive in an area where states have long regulated.
If called upon to defend its sweeping regulatory preemption of state consumer lending law, the CFPB will not be able to cite a detailed, state-by-state analysis of existing regulatory regimes. The CFPB is not proposing to preempt on a case-by-case basis, as Congress required the OCC to do in Dodd-Frank, but to displace state regulatory regimes wholesale and remake the payday consumer lending market. In supplemental findings published contemporaneously with the proposed payday lending rule12, the CFPB examined the percentage of borrowers in 22 states who reborrowed their loans within 7, 14, 30 and 60 days after payoff. In most of those states, 60-day reborrowing rates ranged from 80% to 92%. Some states, however, had markedly lower rates. For example, 60 days post-payoff, only 56% of Illinois borrowers and 68% of Virginia borrowers had reborrowed.
The CFPB concluded that, in all of the 22 states it studied, reborrowing rates were unacceptably high. The CFPB did not, in reaching this conclusion, examine whether the reduced borrowing frequency in Illinois and Virginia was worthy of further study, explain why the reborrowing rates in those states were still too high, or specify what level of reborrowing would be acceptable. Perhaps most importantly, the Bureau did not explain how the proposed payday lending rule would improve the situation of consumers in states that have reformed their consumer financial laws, sometimes through extended trial and error, in an effort to balance consumer protection with access to credit.
The CFPB is almost certainly reevaluating its regulatory agenda in light of the election results, which promise a less favorable environment for large-scale regulatory preemption of the kind represented by the payday loan rulemaking. The CFPBs approach to the rulemaking may make the resulting rule more vulnerable to challenge as regulatory overreach. The CFPBs authority to preempt nationally using its UDAAP authority is inferred from textual silence in a statute that is overtly focused on preserving state law from federal encroachment. The Circuit Courts decision in PHH Corporation removes any principled basis for the Bureaus exemption from the requirement to consult with state officials set out in Executive Order 13,132. Perhaps most significantly, the CFPB has not, to date, devoted serious time and study to understanding the existing state regulatory approaches it would preempt.
A top House Republican said Wednesday he is aiming to work with President-elect Trump to undo President Obamas pending rules on retirement advice and payday lending.
Rep. Jeb Hensarling, the chairman of the House Financial Services Committee, outlined his priorities for the next Congress during a speech in downtown Washington and said he would aim to shutter Fannie Mae and Freddie Mac.
Reform of the Federal Reserve also remains a top priority, Hensarling said.
The Texas Republican is the author of a sweeping financial reform bill, the Financial CHOICE Act, that would replace Obamas 2010 reform bill. While Trump has not endorsed Hensarlings bill, he has expressed support for the goal of replacing the existing Dodd-Frank law. Hensarling said Wednesday that he was working on version 2.0 of the plan.
– Is the CFPB gone, and can we all relax now?
Judging by the direction of the stock market and the financial trade press, November 9, 2016, brought great relief to business in general and to financial services providers particularly. Conventional wisdom is that regulation will decrease, both in content and in fervor of enforcement. Some predict that the CFPB will be dismantled, others that its wings will be clipped and, at the least, that threatened new regulations will be delayed or derailed.
No one can accurately predict what priorities our new president will actually adopt from the menu of vast promises encompassed in the campaign. This article does not try. Rather, we examine some specific tools available to the Executive and Congress to change the direction of the CFPB and the specific procedural and legal contexts that apply to current threats against industry, keeping in mind the limitations of political reality in a divided Congress.
I. Will CFPB Issue Payday and Arbitration Rules? Others?
A. The Procedural Status
Comment periods have recently closed on two important rules, each of which would have material adverse effect on some industry participants. The rule on payday, auto title and high cost installment loans would, by the CFPBs own estimation, render monoline payday lending economically unsustainable and severely constrain the auto title and installment lending businesses. The ban on pre-dispute arbitration agreements would significantly change the dynamic in private enforcement of consumer financial protection laws, re-enabling class action litigation. Affected industries are scurrying to make sure that neither sees the light of day as a final rule before Congress has a chance to consider restructuring the CFPB (below).
Conventional wisdom is that those rules will not be finalized before January 20, when President Trump is sworn in, and after that several measures may be taken to keep the rules on ice until the political process has played out.
First, there is the question whether CFPB staffers could physically handle the job of finalizing these rules any time soon. The cycle time from close of comment period to final rule publication for recent CFPB rules has ranged from (a) nearly a year for a simple rule governing which auto finance companies are larger participants to be supervised by CFPB, to (b) almost two years for a more complex rule on prepaid cards. The complexity of the arbitration rule is somewhere between those two examples, suggesting a normal finalization in mid-2017. The payday rule is orders of magnitude more complex than prepaid cards, and it garnered over a million public comments. Ordinarily, it would be a substantial effort to process a million comments and respond to them adequately under the Administrative Procedures Act in less than two years. If the CFPB were to rush to judgment on the payday rule between October 7, 2016 (the close of the comment period) and January 20, 2017, the final rule would likely contain numerous procedural errors and be the poster child for arbitrary and capricious action, a basis for judicial overturn. If history is any guide, the arbitration rule faces similar difficulties becoming a midnight regulation, but it is conceivable.
B. The Executive Options: (1) Youre Fired
Second, is there anything the new President can do on January 20 to forestall further action on the rules? Here we must take up the effect of the recent decision in PHH v Cordray. In that case, the US Court of Appeals for the DC Circuit held that the statutory structure of CFPB was a violation of the separation of powers concepts inherent in the US Constitution, because it created a completely independent agency with vast rulemaking, adjudicatory and executive functions, free from control from anyone and free from the modulating influence of bi-partisan commission leadership that Congress has used for similar agencies. The simplest solution to cure that flaw, according to the court, was to excise the provision making the Director free from Presidential removal power, except for cause. The court blue penciled out that for cause requirement, but left the CFPB in place.
The PHH case is stayed under standard Circuit Court procedures until the time for a rehearing petition expires on November 26, 2016. Until then, neither party can enforce the decision, and the order to the lower court to proceed in conformity with the decision (the mandate) has not issued. CFPB is also free to petition for a longer stay in order to petition for review in the Supreme Court. We do not yet know which path the CFPB will choose, but they have said they will use one. If the CFPB seeks Circuit Court review by the entire group of DC Circuit judges, call en banc review, the stay will continue, but the opinion in the case will remain law. If the Circuit Court approves en banc review, then the opinion is vacated (it goes away). If the CFPB petitions for review in the Supreme Court, the case will remain stayed, but the opinion will stay on the books.
What does all this mean for President Trump, who is not a party to the litigation, but an interested bystander?
A President who had strong feelings about the CFPB and who was not afraid of being sued might say: the best law that exists on this issue says that I can fire the Director. It may later be changed, but Ill take my chances. Welcome to The Apprentice. Since there is a Deputy Director who can act in the Directors absence, he would also be invited to the show.
The result would be a second case, Cordray v. United States, which likely would follow the same appeal path as PHH v. Cordray, might be consolidated with PHH, and (at the least) would allow the President and the Solicitor General to participate as amicus curiae in the appeal of the PHH case.
C. Executive Options (2): Order CFPB to Comply with Executive Orders
It may be unnecessarily messy and politically untoward to fire the Director and Deputy Director.
Another course might be to include CFPB in existing or future Executive Orders. His transition team has announced the President-elects intention to issue an Executive Order freezing all new regulations temporarily. Could that apply to CFPB? The question brings us back to PHH. That case says that the President can fire the Director. Under conventional analysis, an agency whose head can be fired is an executive agency subject to executive control. But the Dodd-Frank Act explicitly says that CFPB is an independent regulatory agency. There is a long history of that type of agency arguing with other Presidents that they cannot be subject to executive orders, and past presidents have conceded the argument rather than start a fight with Congress. Here, however, a court has said that the agency is not really independent – that it is so powerful that it cannot be, at least in the sense of being outside presidential control. At bottom, a President who can fire the Director can tell him to follow an order.
Thus, we come to executive option 2. A President who was not afraid of litigation would explicitly include CPFB in the regulation-freeze order and also subject it to the order that requires new regulations to undergo cost-benefit analysis review by the Office of Information and Regulatory Affairs (part of OMB). The latter would require new work that would occupy the CFPB Office of Research for some time and is missing from the current payday rule proposal.
How would all this work out? The CFPB might game out that it made sense to await a final decision in the PHH litigation under this scenario, because their issuance of a rule before the PHH case was decided would create an independent basis to find the rule illegal – namely violation of executive orders. And it may be two years or more before PHH is finally decided.
On the merits, PHH is a close case. The CFPB is correct in its claim that the Circuit Court dealt with the structure of independent agencies in a novel way. But the tension the court saw between the Constitution and the administrative estate is not new. In the 1920s, the Supreme Court ruled in Myers that Congress lacks the power to limit a Presidents power to remove a postmaster at will. The Congress cannot take over the executive. A decade later, in Humphreys Executor, FDR sought to fire an FTC Commissioner, solely for policy reasons, where the FTC statute required the President to have specific cause to fire him. The Supreme Court said that Congress does have the power to create a quasi-judicial and quasi-legislative body of experts with a narrow focus who are insulated from political interference through (a) management in a bi-partisan panel of independent experts, and (b) protection during a term of years from presidential removal of those experts. FDR lost. The court acknowledged that there is a lot of room between firing a postmaster and not being able to fire a single commissioner of a multi-member panel, saying that later cases would have to find the line between those extremes. PHH squarely raises the question where the line may be, because CFPB has all of the functions of FTC and much more. It has vast legislative, supervisory, enforcement, adjudicatory and other powers, and it lodges them all in a single person who does not have to ask Congress for money to operate. That was the plan in Dodd-Frank: to insulate consumer protection efforts from the significant influence of industry money on both the president and congress, virtually forever. It may have worked too well.
In summary, the new Chief Executive might find the reasoning of the PHH decision persuasive enough to put his own marker down on the side of the DC Circuit, through either or both personnel decisions or executive orders.
D. Congressional Options: Congressional Review Act.
A little-used federal law, dating back to Newt Gingrichs time on Congress, allows Congress and the President to veto a new federal regulation by resolution of disapproval. It allows a resolution of disapproval (a veto) to pass the Senate without being subject to filibuster. Thus, the current political configuration of Congress could take up and pass a veto over the objections of the Democratic Senate minority. President Trump would likely sign it on January 20.
A Congressional veto can occur up to 60 legislative days (days in session) after the regulation is adopted. The only time the law was successfully used, in 2001, a Republican Congress handed a veto resolution blocking a new OSHA rule to a newly-inaugurated President George W. Bush. That timing would closely track what Congressional veto of a CFPB midnight regulation would look like today.
Most important, if a Congressional veto occurs, the agency involved is prohibited by statute from adopting a similar rule unless subsequently expressly authorized to do so in new legislation.
Thus, if CFPB should rush out either an arbitration rule or a payday rule before January 20 (or thereafter), it risks losing not only the rule, but also the authority to ever adopt a similar rule. A prudent CFPB Director might not take that risk, pending the outcome of the political process described below.
E. Other Rules?
CFPB has either begun to process or promised other rules covering third-party debt collection, first-party debt collection, bank overdraft protection programs, and supervision of installment and title lenders. Only the first in the foregoing list has started a SBREFA pre-rulemaking process and none are at the proposed rule stage. There are also other less significant rules in various stages. Given everything we have set out above, it seems unlikely that new formal proposals (NPRM) will be forthcoming until the political process described below shakes out.
II. Will CFPB Be Eliminated or Curtailed?
A. The Financial CHOICE Act.
Last September, the House passed HR 5983, the Financial CHOICE Act. Its progenitor and long-time CPFB foe, Jeb Hensarling, has recently indicated in the press that he plans to revise and reintroduce it in January. Title III of the bill significantly curtails CFPB independence and power. A short summary of its provisions dealing with CFPB is attached in Appendix A. Congressman Hensarling claims that he has President-elect Trumps ear on the topic, and that seems likely, as Mr. Hensarling is reportedly on the short list for Secretary of Treasury. Dodd-Frank repeal was both a frequent talking point for candidate Trump and an issue where he can buy comity with traditional Republican leadership at little cost to standing with his voter base. Financial CHOICE very well may be part of the first 100 days of a Trump administration.
Meanwhile, Senator Warren has put down her marker against the bill in very clear terms, both opposing its general overhaul of the Dodd-Frank Act and specifically against modifying CFPB in any way. She commands great influence in a minority who have the numbers to filibuster indefinitely. It is possible that the Hensarling bill will languish in the Senate for a long time. Senate leadership has indicated that it is not likely to repeal the rule that allows filibusters, at least as to legislation.
But delay in dealing with the concerns about CFPB and refusal to compromise carries a very real risk for the CFPB. First, its possible an appeal with uphold the PHH decision by 2018. More important, Director Cordrays term expires in July 2018. At the very latest, in July 2018, if a commission structure is not in yet place, President Trump can nominate a single anti-CFPB Director, who will have five years to dismantle to work of the agency. What is more, since Cordray was confirmed under the nuclear option of overriding a filibuster, it seems very likely the same would happen for his replacement from the opposite party. In July 2018, if nothing changes, President Trump can destroy the CFPB.
In short, a victory by Senate Democrats in delaying the Financial Choice Act could be pyrrhic in the extreme — leading to much more permanent damage to the work of CPFB. Compromise might make sense. In contrast, should House leaders pursue a complete repeal of CFPB, then the outcome in the Senate likely would be stalemate.
Returning to our initial topic of the fate of CFPB rules, even if a payday or arbitration rule has been finally adopted by July 2018, it very likely will still be in a pre-implementation period and can be walked back by a new Trump-appointed Director. If a Commission structure is implemented before the rules are adopted, it would be customary for the Commissioners to conduct a complete review of pending rules, and if they have already been adopted (and not vetoed by Congress), the Republican majority on the Commission could begin the process of walking them back.
III. CAN WE ALL RELAX NOW?
Assuming that we are correct that existential threats contained in proposed CFPB rules will go away, and assuming further that CFPB comes under long-term modulating influences such as a Commission leadership, this is not the time to put away compliance management systems. There are 55 or so other state and federal regulators and AGs to worry about.
At the federal level, CFPB retrenchment will bring back the OCC, the FDIC, the FRB , the NCUA and the FTC. For fair lending issues, DOJ will still be at work. When CFPB first came into existence, there was notable regulatory competition from the prudentials to demonstrate that they were also consumer protection cops. Operation Choke Point is an example. We should expect a similar reaction to downscaling of the CFPB – the other cops will step up patrols.
A more constrained CPFB will also rely more on examination authority and the supervisory process to make subtle changes in industry practice over time (and in secret). There is no legislative proposal to constrain the supervisory process or the power to expand supervision over nonbanks. Thus, over time, we may see a CFPB that operates more like a prudential regulator, using enforcement primarily as a result of supervisory findings and moving the needle though supervisory guidelines rather than rules or enforcement actions. Such an environment makes it even more important for supervised companies to be up to snuff on the technical and substantive side of compliance management systems.
Aggressive state regulators, especially investigatory agencies like the AGs and financial regulators we see in New York and California, will continue to pressure both innovators and traditional industries. In addition, consumer advocate groups will likely pursue state referendum efforts similar to the successful campaign that has resulted in a 36% per annum rate cap in South Dakota. Those same advocates will also likely refocus efforts on state legislatures in attempts to add restrictions to state consumer credit laws.
Finally, assuming a Commission is the final decisional authority on a long-delayed payday rule, the work done by the CFPB to date, and the passion of the consumer advocates, suggests that some federal intervention in to small dollar lending is inevitable, perhaps in the next decade.
No, we should not relax. Just heave a sigh of relief and get on with it.
NEW YORK Deregulation may not mean the death knell of Dodd-Frank, yet it may help lenders do more of what their name implies: lend.
That is the message from investors on the first day of the Reuters Global Investment Outlook Summit, despite US President-elect Donald Trumps pledge to reduce regulations that he believes inhibit banks from profiting.
Trumps successful White House run has fueled a big rally in bank stocks, with the KBW Nasdaq Bank Index .BKX, comprised of the nations largest commercial and regional banks, up 13.6 percent in just four trading days following the election.
We dont believe he does away with Dodd-Frank … but he eases off on some of the regulatory restraints that have been hog-tying the banks, said Bruce Richards, chief executive of Marathon Asset Management in New York, a hedge fund firm overseeing $13 billion.
Congress passed the Dodd-Frank financial reforms in 2010, two years after the global financial crisis, to curb banks from taking too many risks on Wall Street and taking advantage of consumers.
Among its key provisions were the Volcker Rule, which crimps banks from taking risks with their own money, and the creation of the Consumer Financial Protection Bureau (CFPB) to police such areas as mortgage servicing, debt collection and payday lending.
Though the White House and both houses of Congress will be controlled by Republicans, it is unclear how much of Dodd-Frank will be rolled back.
Many banks have grown accustomed to some of the new rules and spent heavily to adapt to them.
The appetite in Washington for killing the CFPB is also uncertain, after it helped uncover what morphed into a national scandal over Wells Fargo Cos (WFC.N) opening of unauthorized accounts in an ill-conceived drive by employees to meet sales goals.
Elements of it may not sustain themselves in the new administration, such as required capital levels, said Steven Einhorn, vice chairman of hedge fund firm Omega Advisors, which oversees roughly $4 billion of assets, in New York. You would think and hope the adjustments will free the banks up to take on more lending and credit growth opportunities.
Even the increase in interest rates may help accomplish that, according to Rick Rieder, global chief investment officer of fixed income at BlackRock Inc (BLK.N), which oversees $1.3 trillion of fixed income assets.
He said the surge in benchmark US interest rates following Trumps election bodes well for banks net interest margins, or the difference between what they earn on loans and pay out on deposits, and may push some to extend more credit.
I do think that Dodd Frank is not going to be repealed, he said. You can take a bit more risk: its not just lend extraordinary amounts of money to very high quality borrowers, but take a bit small business risk, a bit more consumer risk…. Thats part of why youre seeing the bank stocks doing as well as they do.
Einhorn said we are in the midst in the US of a very long lasting economic expansion that, together with Trumps election, provides the opportunity for somewhat less severe regulation of the financial sector as well. Do I still like the financial sector? The answer is yes.
Richards expects small-business lending to be a key area of growth.
Thats the number-one place where youll find easing, as opposed to what the markets are assuming, which I think is an incorrect assumption, which is doing away with Dodd-Frank, doing away with the Volcker rule and letting the big banks go back to their old ways, he said.
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(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)
By any measure, 2016 has been some kind of year for Dillon Meek.
The energetic, young District IV Waco city councilman (he turned 32 on Nov. 21) has made the most of this year.
A quick recap:
o He married Lindsey Myers in a beautiful, yet chilly evening ceremony on the Waco Suspension Bridge on Jan. 16.
o On Feb. 2, the Waco City Council passed an ordinance setting restrictions on payday lending, an issue that Meek advocated heavily.
o On June 1, he and Lindsey moved into a wonderful historic house built in 1918 by Waco civic leader and banker Edward Rotan. It was the childhood home of famed pediatrician T. Berry Brazelton, who at age 98 stopped by to see the home this summer while visiting extended family. Brazelton autographed one of his books while there.
o They are expecting their first child, a daughter they’ll name Mabry Jo, in December (her due date is Dec. 6). Lindsey planned to teach her first-grade students at Mountainview Elementary School until the Thanksgiving break, then fully prepare for their child’s arrival.
Yes, that’s quite the year.
“It’s like we’re trying to put in as many life changes in a year as we can,” said Lindsey with a laugh inside their Austin Avenue home. “The past year has been really crazy; but it’s a good crazy.”
“So fast, so fun. But it’s a blessing,” Dillon added.
Life changes aside, it’s Dillon Meek’s passion for improving Waco and how he’s worked as a city councilman and businessman, all while engaging people across all backgrounds, that have made him Waco Today’s choice for Person of the Year.
“I do think everything I’ve gotten to be a part of … I feel like a kid at Christmas,” Meek said. “I’m having so much fun, but I am one cog in a very big machine working to make Waco better. One of the fun things about the payday lending ordinance is that we were able to unite together with a really great, diverse group of people who wanted to see this through.”
It’s Meek’s emphasis on consensus-building and being prepared that impressed former mayor Malcolm Duncan Jr., particularly with that payday lending ordinance. Meek was still relatively new to city council since his election in May 2015.
“He took the time to study what the issues were and to know who the people in the community were,” Duncan said. “He went out to ask them questions. It was a good way to get started.”
Meek said it was definitely worth getting involved.
“The payday lending was one of my primary goals when I got on city council, to really look at reform for that,” he said. “I think that access to capital is a critical component to people in poverty having financial security. For me, one of the things jeopardizing that financial security is people utilizing payday lending and the predatory practices that came with that. It was a real problem in this district.”
Meek was familiar with the issue even while a student at Baylor. He had interned with the Baptist General Convention Public Policy Office in 2006 as a junior.
“This was a big issue to those guys on the state level,” he said. “There were churches behind this. There were presidents of banks testifying on behalf of this. You have this broad cross-section of the community that represents many different spheres standing up and taking about the egregious fees they have to pay. It was fun to rally a really diverse group of people around a really good cause to address this issue.”
He said he was glad to play his role in that process, but is quick to credit the hard work done by members of the Citizens for Responsible Lending and community leaders like Alexis Christensen and Phil York (who has since moved to become director of development for Habitat for Humanity in Carroll County, Maryland).
Meek said he’s glad to call Waco home, adding that he became enamored with the city while a Baylor student.
“My experience at Baylor was so great it would have been impossible not to fall in love with Waco,” he said.
He grew up in Edna, Texas, which is a few miles northeast of Victoria. His father, David, raises cattle on a ranch. Mom Libby is a public school teacher. An older brother, Phillip, graduated from Texas Aamp;M and then earned a master’s in creative writing from the University of Montana.
Dillon arrived at Baylor in 2003, mostly because he was sold on it by a cousin, Bret Phillips, who was a sophomore when Dillon started classes.
Dillon and Lindsey met at Baylor, but they didn’t start dating until after both graduated in 2007. She returned to her hometown in Austin to begin her teaching career. Dillon went on to Baylor Law School and chose to remain.
He found work at the Waco law firm of Haley amp; Olson and was there for three years, representing cities in litigation as well as clients that are financial institutions and energy companies.
“I learned a ton there about what it takes to be a lawyer and representing clients well,” Meek said. “I was sad to leave, but I had a chance to join this growing investment company (Rydell Capital, which is moving into a new office on the fourth floor of the National Lloyds Building downtown).”
Meek is Rydell’s general counsel and also manages its investments, which include ownership of or partnerships with Fuego Grill, Urban Produce, Premier ER and Campus Realtors.
Meek said he especially enjoys the real estate investment aspect of Rydell Capital, which was founded by Ryan Gibson and Chris DeLeenheer.
“What role can we play in growing our city?” Meek asked rhetorically. “I want to be profitable, but at the same time make real estate investments that are going to benefit our city.”
To that end, he hopes his company can help develop places where local graduates of Baylor, McLennan Community College and Texas State Technical College can live and remain in Waco.
“I want us to build a beautiful neighborhood for young professionals to live in after they graduate. That’s one of my passions.” he said. “To invest in downtown, to build up downtown properties.
“I’m really thankful for those I work with, because they also allow me the flexibility to do my job at city council. They’ve given such grace for me to run to a budget meeting or run to a community meeting in the middle of the day.
“I couldn’t be doing what I’m doing but for their care for the city.”
And it’s obvious that Meek cares about Waco, too, said former mayor Duncan.
“He’s meshed well with the other council members,” Duncan said. “He has a high degree of energy and enthusiasm. He’s a breath of fresh air.”
For Meek, he said he feels fortunate to work alongside other people committed to improving Waco.
“I have such respect for the mayor I am serving under,” he said of current Mayor Kyle Deaver. “I think he’s an incredible leader who continues to do an incredible job as mayor. Alice (Rodriguez) and Wilbert (Austin Sr.) have such longtime service. There’s a camaraderie there. Even when we vote differently, it doesn’t build up walls. We can recognize that we’re still friends working toward the same goal. I have so enjoyed learning from them about what it takes to be an effective councilperson.”
Meek is pleased with the work he and District III Councilman John Kinnaird are doing on creating the Community Loan Center, which is designed to allow employees to take out small-dollar loans at a favorable interest rate.
“That’s what I love about local government,” Meek said. “To identify problems in the community, and say, ‘how are we going to solve that problem?’ Some people might have different ideas about the ways to go about that, but it’s been enjoyable for me to get a lot of different people in the room and say, ‘how are we going to address this?’ and come up with a solution, then go forward and tackle it.”
Meek recalled a situation with a fellow council member that he thinks illustrates well the camaraderie on the council.
“Wilbert Austin and I were talking about a hot-button issue one time, and we were kind of going back and forth on it, and then he stopped me and said, ‘Dillon, have you prayed about this yet?’
“And I said, ‘Well, I actually haven’t.’ And he goes, ‘Well, you’re only getting ahead of yourself if you haven’t prayed about this yet.’
“That may be the best life advice I’ve ever gotten. To really seek the Lord as we move forward in our business. That’s something I really have a conviction about and believe that. And that’s the spirit in which that council operates … in a real healthy way.
“We’re taking it seriously, we’re walking in humility and we’re really trying to do our best for the city.”
One of the best traits about Meek is his willingness and ability to work well with others.
He ran against Ashley Thornton, who serves as director of continuous improvement at Baylor and has been involved in numerous community initiatives, for the District IV council seat last year. Despite their differences politically, the two since the election have become great friends and sounding boards for each other.
Signs advertise short-term loans stands in Birmingham, Alabama, in 2015. The federal Consumer Financial Protection Bureau has released sweeping new proposed rules that take aim at the payday lending industry, but consumer advocates say they could undermine Georgias ban on such high-cost loans. Bloomberg photo by Gary Tramontina.
“Our dedicated officers have vast experience in dealing with financial management and can provide information which will allow residents to make informed choices.”
Following StepChange’s findings, SNP MSP for Clydebank and Milngavie, Gil Paterson, also backed calls for regulations around payday loan sharks to be tightened.
He explained: “Payday loans are a curse on poorer areas of my constituency and trapping the poor and working poor in financial bedlam.
“The FCA has to tighten the rules to combat payday loan-sharking – and the treatment of people in financial difficulty – for the good of our most vulnerable citizens.
“Unfortunately, the powers to regulate this industry rests with the UK government. If it were a devolved matter, I am sure the Scottish Parliament would have taken radical action to end this injustice.”
Chief executive of StepChange, Mike O’Connor, described how regulation can make “a significant difference” to broken markets, but acknowledged there is still work to be done.
He said: “It’s essential the FCA review the payday lending cap is broad enough to fix areas of consumer detriment and poor lending practices.”
He added that there is also a “clear and immediate need” for the government to examine more affordable forms of borrowing for financially vulnerable people.
To speak with a member of the Working 4 U team, call 01389 738296.