So…I used to joke about how the Dodd-Frank Act was my retirement plan—that is, the activist CFPB would carry me through my legal career. I may need to rethink that position.
Tuesday's election has major implications for the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Consumer Financial Protection Bureau created thereunder. Recall that the Dodd-Frank Act was passed during the first two years of President Obama's administration, at a time when Democrats controlled both Houses of Congress. That law was a dream-come-true for consumer advocates—that is, a superpower agency of government devoted to consumer financial protection, headed by an activist director, and with a budget not set by Congress. Such an agency of government, without real Congressional oversight, had never before been tried in the United States. The results over the past six years have been nothing short of stunning—both in terms of changing the landscape in which financial institutions operate, and penalties assessed and settlements extracted from them.
Of course it is still early. But, what is clear from Tuesday's Republican Party triumph is that the calls for change in the Dodd-Frank Act can now be backed up by a legislative majority willing to make wholesale change, and by a Republican President who can be expected to endorse such change; all without the Democratic Senate minority able to do much of anything about it. It is highly questionable whether Democrats will try to filibuster changes to Dodd-Frank unless such changes entirely gut the law.
Some Washington insiders are suggesting that the new Republican dominance will mean an outright repeal of the Dodd-Frank Act. We predict less sweeping though very substantive changes to the Dodd-Frank Act will be put forward early in the 115th United States Congress. These include:
- A change from a single Director to a Commission of five or more members (similar to the Securities and Exchange Commission and the Federal Trade Commission), and cause the Consumer Financial Protection Bureau to evolve from a bureau into the Consumer Financial Protection Commission (“CFPC”).
- The new Commission members will serve at the will of the President and will require Senate confirmation which will eliminate the current court battle over Director Cordray's tenure as sole-director.
- The budget of such a CFPC will be set by Congress, and will no longer be a percentage of the Federal Reserve Board's budget.
- The supervisory and enforcement duties of the CFPC will be more separated from one another, allowing for more Congressional oversight of the enforcement function.
This list of substantive changes should sound familiar. Congressional Republicans have been arguing for these changes for the last six years. They are now in a position to do something.
The fall-out from such changes will be significant. These changes will go a long way to lift the serious threat of regulatory enforcement actions against all types of financial services providers, including banks, finance companies, payday lenders, mortgage lenders, credit insurance providers, student and mortgage loan servicers, and debt collectors. All of these industries have been under scrutiny by the CFPB over the past few years; and, all have spent countless millions of dollars on compliance and oversight.
We don't predict a return to the free-for-all days of loose credit that lead to the Great Recession of 2008. We do predict a return of supervisory and enforcement responsibility for non-federal institutions to the states. And most significantly, we predict that the era of unfettered supervision and enforcement of financial institutions and related industries by the CFPB is coming to a close.