A few years ago, we started our Sirote Consumer Finance Report blog with a two-part post on the “Brave New World” of consumer financial regulation (here and here). Back then, the CFPB was beginning to flex its supervision and enforcement muscles over consumer lenders, and many in the consumer finance industry, especially non-bank lenders, experienced meaningful federal oversight for the first time. In our very first blog post, we anticipated “an uptick in federal regulatory activity.” Boy, was that an understatement!
Fast forward several years and several billion dollars in enforcement later. The CFPB is a central part of daily life in the consumer finance industry. That is, it is the new normal. Or at least it was, until January 20, 2017 when President Trump took office. Now, once again, we are in unchartered waters. This time, no one knows exactly what the future holds for the CFPB. In other words, a Brave New World 2.0.
In the twelve months leading up to the election, CFPB Director Richard Cordray aggressively advanced the Bureau's regulatory agenda. Just in 2016, the CFPB issued its proposed small dollar/payday rule, proposed arbitration rule, and debt collection proposals. Currently, those projects, among many others, are in various stages of development. So, the immediate question is what happens to these pending regulatory initiatives—each of which significantly impacts the consumer finance industry.
Days after taking office, President Trump issued an executive order directed at curtailing new federal regulations. However, the CFPB as an independent agency is not bound by that order. Nonetheless, we know the Trump Administration does not have a strong appetite for regulatory expansion. In the short-term, we expect the CFPB to continue working on these initiatives, but don't be surprised if some end up indefinitely tabled.
The bigger question is what happens long-term to the CFPB. The CFPB doesn't function like other federal agencies, both in terms of its leadership and funding. Director Cordray's term expires in 2018, and there has been litigation over whether he can be “fired” by the President, with a rehearing of PHH Corporation v. CFPB scheduled later this year. Just in the last few days, the Justice Department filed a brief arguing that the President should have authority to remove the CFPB Director. As those who watch the Apprentice know, President Trump has no problem firing people.
On the legislative front, Congressional Republicans have proposed numerous bills that would reform (or even abolish) the CFPB. During the campaign and since taking office, President Trump has expressed a desire to reign in the power of the CFPB. As we speculated last year, changes are in store.
What will the consumer lending world look like in six months or even six years? Will we continue to see the “uptick in regulatory activity?” Or, are we headed back to the pre-CFPB days? My guess is the answer is somewhere in-between. I think the CFPB is here to stay, but it will probably look significantly different in the near future.
But, no one really knows. That's why it is a Brave New World 2.0.