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Is Change on the Horizon for the CFPB?

CFPBThe Consumer Financial Protection Bureau (CFPB) has generated no small amount of controversy in its almost five-year existence. Various legislation has been introduced by Republicans over the last few years to try to reform the CFPB, which the GOP says is too powerful and unaccountable. None of them have gained much traction in Congress, however.

With the prospect of a Republican winning the White House in November, will that change?

Some recent incidents indicate that the industry may be ready for a change. In the last month or so, the Bureau’s proposed rules on eliminating mandatory arbitration clauses from business contracts and also on reforming the payday lending industry have touched off a firestorm.

Also, in April, the CFPB was taken to task in the opening arguments of PHH Mortgage’s appeal of a $109 million penalty handed down by CFPB Director Richard Cordray for allegedly accepting illegal mortgage kickbacks. A panel of three Republican-appointed judges in the D.C. Circuit Court questioned the constitutionality of the Bureau’s single-director structure, with one judge even calling it “problematic.” That case could turn out to be a landmark one if PHH is successful—PHH is the first company to judicially challenge a penalty assessed by the CFPB.

A couple of major CFPB reform proposals have emerged in the last month. Last month, Rep. Tom Emmer (R-Minnesota) proposed a bill that would amend the CFPB’s mission to direct the Bureau’s focus to competition and consumer choice while at the same time continuing to focus on fairness and transparency.

On Tuesday, Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, introduced a comprehensive plan to overhaul the Dodd-Frank Wall Street Reform Act called the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act. Hensarling’s proposal includes a complete overhaul of the CFPB which includes changing its name to the Consumer Financial Opportunity Commission (CFOC) and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis (similar to Emmer’s proposal).

The Financial CHOICE Act also includes a proposal to replace the CFPB’s single director with a bipartisan, five-member commission, and appoint a Senate-confirmed independent inspector general for the Bureau.

“But the Bureau operates as legislature cop on the beat, prosecutor, judge and jury all rolled into one. Fines imposed in such an abusive structure tell us nothing about justice or consumer welfare. Nothing.”

Jeb Hensarling

“The CFPB has an important mission,” Hensarling said in an exclusive interview with DS News last month. “Properly designed and led, it is capable of great good.”

Rep. Maxine Waters (D-California), Ranking Member in the House Financial Services Committee, was quick to criticize the Financial CHOICE Act, saying “From hobbling the Consumer Financial Protection Bureau—an agency that’s returned nearly $12 billion to 25 million consumers in just five short years—to undoing regulators’ ability to rein-in non-bank actors like AIG, to bringing back the same type of speculative trading that led to the crisis, to repealing Dodd-Frank’s mechanism to unwind large banks without harming taxpayers, this package is a gift to nearly every special interest that the Financial Services Committee oversees.”

Hensarling stated in a House Financial Services Committee hearing in March, “Apologists for the Bureau, along with Mr. Cordray, frequently cite the tens of millions of dollars of fines they have imposed as proof they are protecting consumers. But the Bureau operates as legislature cop on the beat, prosecutor, judge and jury all rolled into one. Fines imposed in such an abusive structure tell us nothing about justice or consumer welfare. Nothing.”

Hensarling said the Financial CHOICE Act will be formally introduced as legislation in July. The proposal will need some bipartisan support if it is going to have a shot at passing while Obama is still in office, since he is almost certain to veto any type of legislation that will weaken Dodd-Frank and there currently are not enough Republicans in the Senate to override a presidential veto. Generally any legislation aimed at rolling back Dodd-Frank or reforming the CFPB has been sharply divided among party lines.

But with a Republican in the White House, the result may be different, since presumptive Republican nominee Donald Trump has already said he will overhaul Dodd-Frank if he is elected president.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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