By Ray Birch
WASHINGTON—Today marks the 10th anniversary of the Consumer Financial Protection Bureau—marking a decade of debate over its structure, authority, compliance demands, mission, and whether it needs to exist at all. And that includes an initial disagreement between the two main CU trade associations.
On July 21, 2011, one year after President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, the newest federal bureaucracy was up and running at its new offices on G St. NW in Washington.
The Bureau, as it’s often referred to, was borne out of the Great Recession and by a new Democratic administration and Congress eager to respond to the anger felt by many toward the abuses that had created the housing crash of 2008. Sen. Elizabeth Warren (D-MA) was among the primary architects behind creation of the CFPB and she continues to fend off its critics.
Among the strongest of criticisms: an agency created to defend the little guy, the average consumer, is blamed by many for helping bring about the demise of smaller institutions at the expense of big banks.
Following the Great Recession, the CFPB became the United States’ first federal agency dedicated to protecting consumers from financial abuse. But not everyone agreed it was needed, and that includes the credit union trade groups, CUNA and NAFCU.
While expressing general concerns over its scope, CUNA ultimately supported the new agency. NAFCU did not, a fact it often references, especially as more CUs cross the $10 billion in assets threshold and fall under its regulatory purview, and as credit unions in general are affected by its rules.
A Growing Shadow
Indeed, both trade groups say the objectives behind creation of the CFPB have become overshadowed by the regulatory burden being placed on financial institutions, especially as smaller FIs get swept under CFPB rules targeting large banks and other financial entities that don’t have consumers’ best interests in mind.
Ryan Donovan
“It’s only been 10 years? It seems like a lot longer than that,” mused CUNA Chief Advocacy Officer Ryan Donavan. “We've spent the better part the last 10 years trying to keep the CFPB from making it more difficult for credit unions to improve members’ financial well-being and advance the communities they serve. Every step of the way it seems the Bureau has tried to make credit unions’ jobs harder by imposing new regulations on them that in a lot of cases were designed to curtail activity that credit unions weren't engaged in. I think that it's been a pretty frustrating decade working with the Bureau, responding to their rule changes.”
‘Harsh Reality’
Ann Kossachev, director of regulatory affairs at NAFCU, said the “harsh reality” of the Bureau’s impact is credit unions continue to face “substantial and expected” regulatory burden.
“In the past decade we've seen immense consolidation of the industry,” Kossachev noted. “We've lost more than 1,500 credit unions, largely due to regulatory burden. It is time-consuming and expensive too deal with a barrage of new regulatory requirements from the Bureau, and other regulators. It makes it almost impossible for some smaller institutions to stay afloat. There should instead be avenues to allow small businesses to be successful and serve their communities and not get swept under the regulatory burden that often comes in the form of rules meant to target bad actors.”
The power the CFPB has wielded over the years has been a major concern of credit unions and their trade associations, which have lobbied for the removal of the single-director structure in favor of a commission, a battle still being fought in Washington today. The Supreme Court has ruled ruled that the CFPB director can be removed by a president.
When the CFPB was formed, President Obama nominated former Ohio Attorney General and Ohio State Treasurer Richard Cordray to become the first formal director of the CFPB and he would take an active position in defining the agency’s jurisdiction. Six years later, following a term during which Cordray was often accused of overstepping the agency’s authority with far-ranging regulations on financial institutions, Cordray made plans to exit his post to enter an ultimately unsuccessful run for the governorship of Ohio.
A Bizarre Period
The transition would create one of the more bizarre periods in the history of federal agencies. On Nov. 24, 2017, Cordray appointed Leandra English deputy director, stating he would leave office at the end of the day. Cordray cited what he said were provisions in the Dodd-Frank Act that allowed him to create the deputy director position and to name a successor. But there was a new president in office, Donald Trump, who disagreed with Cordray’s interpretation, and he appointed his director of the Office of Management and Budget, Mick Mulvaney, as acting director.
That created several days during which two people claimed they were in charge of the CFPB, before English ultimately departed. (Mulvaney also was responsible another short-lived bizarre moment, attempting to change the name of the CFPB to the BCFP, saying the original legislation used the latter name.)
Ann C. Kossachev
In December of 2018, President Trump appointed Kathy Kraninger, who then worked for the Office of Management and Budget, to head the Bureau. Under Kraninger, the Bureau reflected the Trump Adminstration’s deregulatory philosophy, and dialed back many of the initiatives and focus championed by Cordray.
A New Director is in Town
But the pendulum has again swung in the other direction. This year, President Biden appointed David Uejio to run the CFPB on an acting basis after Kraninger resigned at the new administration’s request. Uejio is running the agency pending Senate confirmation of Federal Trade Commission member Rohit Chopra as its permanent director.
Uejio has indicated the agency will return to a more aggressive posture in a number of areas, moving away from the Trump administration’s direction to ratchet back the regulatory activity of the Bureau.
Now, after all those changes over the last 10 years, credit union observers are left attempting to interpret what to make of all of it.
“I'm not sure there's been significant positive impact on credit union members as a result of the Bureau having been in place,” said CUNA’s Donovan, who said he believes when the new CFPB director is finally confirmed there will be an “onslaught” of regulatory changes. “Some rules have already been put into effect, and some will be going into effect—for example, the debt collection rule that goes into effect early next year. I think there's going to be a lot of things coming down that frankly are going to complicate credit unions’ ability to serve their members.”
Agency in Transition
Kossachev agreed it’s difficult at this point to know just what to expect, pointing out the CFPB is now in transition.
“It’s in transition and transformation,” she explained, emphasizing NAFCU opposed the creation of the CFPB and that it has long advocated for a five-person commission instead of a single director. “Undoubtedly, there will be implications for the credit union industry, both good and bad. The impact of the CFPB on credit unions under President Obama was very different than that of President Trump. And now under President Biden…Last year’s decision, too, in a law case brings even less insulation (to the Bureau) from politics…We continue to advocate for a bipartisan commission instead of a single director. It's clear that this this type of government structure would be the way to reduce uncertainty and ensure that different perspectives are always maintained, regardless of the politics of the administration in power.”
Multiple Legal Challenges
Legal challenges to the authority and structure of the CFPB have followed the agency almost since its inception.
Among the latest is a May 2019 ruling by the U.S. Court of Appeals for the Ninth Circuit that the CFPB’s single-director structure is constitutional. In its ruling, the Ninth Circuit cited a decision from the U.S. Court of Appeals for the D.C. Circuit sitting en banc, which had ruled in favor of the bureau’s constitutionality in a case that had been originally filed by PHH Corp.
In October 2019, the Supreme Court announced it would review the constitutionality of the Bureau's structure in the case Seila Law v. Consumer Financial Protection Bureau considering the split decision of the lower courts.
In March of 2020, during oral arguments, the Supreme Court signaled it may not support the leadership structure of the CFPB but added it has no intention of ruling against the agency’s existence. The Supreme Court heard the arguments in the case Seila Law vs. the CFPB at which the constitutionality of the Bureau’s single director status and the ability of the president to appoint and remove the director was argued. The case created a unique situation with the administration choosing not to defend the structure of the Bureau. CUNA and NAFCU filed briefs in the case and have advocated for the Bureau to move to a five-person board.
In June of last year, a Senate version of legislation that would change the leadership structure at the Consumer Financial Protection Bureau from a single director with a five-person, bipartisan commission was introduced by Sen. Deb Fischer (R-NE). A House companion bill was introduced in March by Rep. Blaine Luetkemeyer (R-MO). Similar legislation had also been introduced in several prior sessions of Congress, but did not advance, a fate faced, too, by the bill Fischer penned.
The Pendulum Swings
“I'm sure we'll someday see the pendulum swing back in the other direction,” said Donovan regarding the CFPB’s likely more aggressive stance around enforcement and regulation. “Consumers don't benefit when that happens.”
Donovan said CUNA believes a five-person commission would end the back-and-forth nature of the CFPB’s regulatory positions. Donovan said that when CUNA initially backed the formation of the CFPB, plans called for its oversight to be governed by a commission.
But whether it’s a single director structure or a five-person panel, Donovan said the CFPB needs to focus somewhere other than credit unions..
“The constant consumer financial protection for the past 100-plus years has been credit unions,” said Donovan. “Credit unions were the first consumer financial protectors and they've been there all along. All we know is that consumers are better served when their members of credit unions, so, we're going to try to continue to do the best job that we can to protect consumers in a regulatory environment that's set up to make it difficult for credit unions to do that.”
A Shining Light
With Chopra likely to be confirmed by the Senate as the next CFPB director, it is good to know he sees credit unions as a “shining light” in financial services, according to Kossachev.
“We'll see what happens, but under the previous administration there was certainly a focus on getting a full picture from all sides when it comes to the impact of rulemaking,” Kossachev said. “We’re cautiously optimistic that the Bureau will continue to make the same effort. Either way, we're going to continue to continue to proactively engage with the agency.”