Washington is abuzz with possibilities for major changes in the Dodd-Frank Wall Street Reform and Consumer Protection Act, with all eyes on the incoming Trump Administration. In the rare environment when one party controls the Senate, the House and the Presidency, there are endless possibilities.
For the past six years, the House Republican leadership has targeted the CFPB created under the Dodd-Frank Act, as a prime example of a regulatory body gone amuck. President-elect Trump continually called for changes in the Dodd Frank Act as he campaigned across the country. Now we will see whether the new president and new congress are on the same page.
There have been many ideas floated about structural changes to the Act including the creation of a Commission to control the CFPB as opposed to a single Director, and giving Congress the power to control the budget of the CFPB as opposed to its funding coming as a percentage of the Federal Reserve System's revenues. Certainly, these structural changes and others are significant. In addition, the following changes to the Dodd-Frank Act and the CFPB's agenda affecting consumer finance could be in the offing:
- Require the CFPB to drop its proposed Rule on Arbitration. Among other things, the proposal would eliminate class-action waiver in pre-dispute consumer arbitration. This proposal has drawn sharp opposition from industry and from Members of Congress. Pre-dispute consumer arbitration, inclusive of class action waiver, has been instrumental in reducing frivolous law suits.
- Put a freeze, if not a permanent hold, on the proposed Small Dollar Loan Rule. The CFPB has proposed a mammoth rulemaking that would significantly impact consumer lending in the USA. When the CFPB undertook rulemaking in this area of the consumer services market, few envisioned that the agency would take such an expansive approach. Well, perhaps Senator Warren did. But, the point is that after three years, the proposal has become such a monstrosity as to warrant its being eliminated altogether. The Bureau needs to go back to the drawing board to propose a reasonable regulation addressing payday lending, title pledge transactions and refund anticipation loans.
- The Dodd-Frank Act's “abusive” standard needs serious revision. In fact, it needs to be eliminated entirely. This standard—something created out of whole cloth by the Dodd-Frank Act—is being abused itself by the CFPB to extract millions of dollars in settlements from unwitting creditors. The standard as written by the Act almost amounts to a “least sophisticated consumer” analysis for every product and service offered by the Consumer Finance Industry. The application of this standard has created a nightmare for those who want to play by the rules but can't find a rulebook that is understandable.
We will soon know whether the Republican leadership will move forward with its agenda item to significantly reign in the CFPB.