Sweeping deregulation proposal targets the CFPB
Consumer financial protections would be gutted if Financial CHOICE Act is enabled, opponents say
By Fred O. Williams | Published: April 26, 2017
Expert on consumer credit laws and regulations
Republicans in Congress showcased an aggressive deregulation plan on Wednesday that – if enacted – would all but shut down the Consumer Financial Protection Bureau, the agency created in 2011 to be the cop-on-the-beat for consumers.
Dubbed the Financial CHOICE Act, the plan is designed to rein in the "rogue agency" and remove red tape that is choking off bank loans and job creation, House Financial Services Committee Chairman Jeb Hensarling said.
Democrats and consumer advocates railed at the sweeping 593-page draft proposal – which lacks Democratic support it would need to advance in the Senate.
Calling it the "wrong choice act," Rep. Maxine Waters, the ranking Democrat on the committee, said the bill "thoroughly dismantles Wall Street reform and guts the Consumer Financial Protection Bureau."
The agency has won $11.7 billion in refunds and debt forgiveness for consumers using the powers that would be erased by Hensarling’s bill, Waters said. "Democrats are going to fight against it and stand up for Main Street," she said.
Among the agency’s enforcement actions were crackdowns on 12 major credit card lenders and their service providers for deceptive marketing. The enforcement actions yielded $2.8 billion in refunds for more than 21 million cardholders.
Proponents of the bill say the CFPB’s crackdowns are the product of unchecked power from an agency that has trampled on the rights of businesses.
Proposal’s potential impact
Key provisions of Hensarling’s bill targeting consumer protection would:
- End CFPB authority to crack down on "unfair, deceptive and abusive practices." The legal authority provided by the Dodd-Frank Act is a club the bureau has used to halt harmful practices by banks, credit card issuers, payday lenders, credit bureaus and others.
- Eliminate the bureau’s independent status by putting its budget under congressional control and making its director subject to removal by the president at will, instead of having a fixed term.
- Remove the bureau’s online complaint database, through which customers can publicly describe how they were treated by banks, card issuers and other financial companies.
- Block the agency from issuing rules on payday loans and pre-dispute arbitration clauses, which halt consumers from taking companies to court in a dispute.
- End the agency’s supervisory role, in which examiners keep an eye on practices at large banks, debt collectors and other companies.
Consumer advocates on Wednesday launched broadsides vehemently opposing the bill, which committee members said is scheduled for markup next week.
"The bill appears to have been written by a team of lawbreakers and predatory lenders putting together their wish list of how to undo consumer protections," Lauren Saunders, associate director of the National Consumer Law Center, wrote in a letter to members of Congress.
Dodd-Frank in the crosshairs
The measure fulfills Republican promises to roll back the Dodd-Frank Act, which created the consumer bureau in the wake of the financial crisis. President Donald Trump has targeted the financial sector for deregulation, pledging in a talk earlier this month to "do a very major haircut on Dodd-Frank."
But while the White House has put out the welcome mat for the measure, there’s a big hurdle to adoption in the Senate, where the proposal needs at least eight Democratic votes to avoid a procedural roadblock.
Hensarling launched a previous version of the bill, containing many of the same provisions, that expired in the last Congress. The result this time around for what is being called "Choice 2.0" may be a narrower, compromise bill that can attract some Democratic support, while leaving consumer protection powers largely intact.
"I and some members on this side support improving aspects of Dodd-Frank," Rep. Dan Kildee, a Democrat from Michigan, said during the hearing. But dismantling consumer protections isn’t the way to lighten regulatory burdens, he added.
Room for compromise
Loosening regulations for small banks and credit unions that don’t pose a threat to the financial system is seen as a likely area for compromise. Consumer advocacy organizations have suggested other reforms reducing the burden on banks of enforcing anti-money laundering rules.
The CHOICE Act "gives members no choice," Rep. Brad Sherman, a California Democrat said, calling for individual provisions that can be debated one by one. "Mr. Chairman, please break up this bill."
In the Senate, where the Choice Act has no parallel measure, Banking Committee Chairman Mike Crapo has said he would broker compromises with Democrats to revise Dodd-Frank. And in the House, the measure might lose Republican votes in a floor vote because of opposition from the retail industry, which would face higher transaction fees for debit cards.
"I suspect this bill will share the fate of Trumpcare, though it may get further in the legislative process than Trumpcare did," Jeff Sovern, an expert on consumer protection at St. John’s University School of Law, wrote in a recent blog post.
paths for consumer bureau
Five months after the election, the consumer bureau stands as an example of how deregulation plans can take longer to achieve than expected. Director Richard Cordray, an Obama appointee whom Hensarling wants fired, remains in charge of the agency, legally protected from replacement except for cause.
While the hearing was still going on Wednesday, the agency announced another crackdown – a $1.25 million fine on an auto lender that specializes in loans to military service members. It also issued a report that said its non-public supervisory activities stopped the wrongful denial of refunds by student loan servicers. Supervision also recovered about $6 million from auto lenders for 16,000 consumers harmed by illegal practices.
"They’ve been going full steam ahead and not really slowing down in their work," said Brian Simmonds Marshall, policy counsel at the consortium Americans for Financial Reform.
However, Cordray’s eventual departure would probably mean at least a temporary reduction in the agency’s consumer protection activities, as the White House can appoint a deregulation-minded director. Cordray’s term ends in mid-2018, and he may leave earlier to run for governor in his home state of Ohio, something he has not ruled out.
In addition, a legal challenge to the director’s independence is playing out in federal court. A panel of the District of Columbia Circuit Court of Appeals ruled in October 2016 that the Dodd-Frank Act’s provision insulating the agency director is unconstitutional, and made him removable by the president at will. The CFPB appealed, setting aside the panel’s ruling. A hearing by the full court is set May 24.
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