Expert on consumer credit laws and regulations.
The new, temporary head of the federal consumer protection bureau is reversing course at the agency, which Congress created to fight anti-consumer practices by lenders and other financial service companies.
In three months since becoming acting director of the Consumer Financial Protection Bureau, Trump appointee John M. “Mick” Mulvaney has used his authority – which is being challenged in federal court – to halt the agency’s rulemaking and enforcement activity, rolling it back in some cases.
A five-year strategic plan signed by Mulvaney states the agency will act with “humility and moderation.” The bureau will protect the rights of regulated companies as well as consumers, and work to reduce regulatory burdens as well as implement consumer protection rules.
“Mulvaney wants the agency to stand up for big banks and scammers instead of holding them accountable when they cheat consumers,” Sen. Elizabeth Warren, D-Mass., an architect of the agency, said on Twitter.
CFPB reverses course on consumer protections
Impact on consumers of CFPB transformation
For consumers, the shift in the agency’s direction means the phase-out of refunds that had put nearly $12 billion back into their pockets since the CFPB opened in 2011.
- One lawsuit and one investigation against high-cost lenders have been dropped by the consumer protection bureau since Mulvaney took charge Nov. 27, 2017.
- No new enforcement actions have been filed by the CFPB since his arrival.
- That record compares to an average of three new enforcement actions per month during the portion of 2017 before Mulvaney’s arrival, when Obama-appointed Richard Cordray was director.
- The 36 enforcement actions made public in 2017 under Cordray sought repayments to consumers or forgiveness of debt totaling $260.5 million, plus civil penalties of $38.6 million.
Refunds and debt forgivenesss generated through the CFPB’s supervisory role over companies are nonpublic, and are not included in the refunds generated by enforcement actions.
The CFPB’s supervision and enforcement actions combined are expected to yield $426 million in restitution to 2.2 million consumers or accounts during the fiscal year that ended Sept. 30, 2017, according to the agency’s annual report signed by Cordray.
CFPB enforcement actions before, after Mulvaney
|Number of actions||Civil penalties sought||Consumer refunds sought|
|11 months before Mulvaney||36||$38.6 million||$260.5 million|
|3 months after Mulvaney||0||0||0|
Agency less fearsome to lenders
Perhaps as important for consumers as the lack of payback, the agency’s less-aggressive posture gives lenders and other financial service companies less reason to fear punishment for anti-consumer practices.
“Mick Mulvaney is making it easier for predatory lenders to pick the pocketbooks of American consumers – the exact opposite of the CFPB’s mission,” said a statement from Yana Miles, senior legislative counsel at the Center for Responsible Lending.
The CFPB began its enforcement actions in 2012 with a crackdown on credit card “payment protection” products that were misleading or even worthless for the people they were marketed to. After obtaining a $150 million settlement from Capital One, the agency came down on 11 more issuers, collecting $2.8 billion in refunds for card users and sending a message that harmful practices wouldn’t be tolerated.
Mulvaney: CFPB takes a more-balanced approach
As newspaper editorials aimed criticism at the CFPB head, Mulvaney, in an op-ed in USA Today, denied charges that he is turning the agency into a corporate lapdog.
He said the CFPB’s lighter regulatory hand is a result of the new administration and new leadership, bringing balance to government regulation.
Given its extensive powers, the CFPB needs to consider the rights of businesses as well as consumers while enforcing the law, he said.
In a Jan. 23, 2018, memo to staff, Mulvaney said the agency will enforce consumer protection laws, its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act, but will redefine its role for serving the public.
Under Cordray, the agency pushed the envelope in pursuit of its “supposed ‘mission’,” he said, and viewed companies as the “bad guys.” But as an arm of the government, the CFPB works for lenders and credit card companies as well as for consumers, the memo says.
While there will be times when the agency will take “dramatic action” to protect consumers, that should be “the most final of last resorts,” the memo states.
The consumer protection agency’s new mission gets applause from industry and fellow deregulation-minded Republicans in Congress, who object to the powers given to the bureau under the Dodd-Frank. The U.S. Chamber of Commerce sided with Mulvaney in a federal court battle over the legitimacy of his appointment.
Rolling back consumer protection mission
However, opponents point to rollbacks of CFPB initiatives as evidence that Mulvaney, who co-sponsored legislation to eliminate the CFPB as a South Carolina congressman in 2015, is not just lightening the agency’s touch.
“Unfortunately for ordinary Americans everywhere, CFPB is turning into a drastically different bureau than it was merely two months ago,” National Association of Consumer Advocates Legislative Director Christine Hines said on Twitter.
For example, the CFPB under Mulvaney has:
- Dropped actions involving high-cost lenders.
- The CFPB dropped its lawsuit against Golden Valley Lending and related companies, which are using tribal-owned status as a shield from lending laws, sometimes charging interest rates as high as 950 percent.
- The consumer protection agency also dropped an investigation into World Acceptance Corp., the company announced in January. The term-loan company relies on getting borrowers to repeatedly roll over high-cost loans and skirts restrictions on military lending and state interest rate caps, an investigative report by ProPublica found.
- The moves prompted a sharp reaction from Democrats in Congress. “These actions have unwound years of careful CFPB work – all to benefit an industry that has close ties to Mr. Mulvaney and that has contributed more than $60,000 to his political campaigns,” Sen. Warren and four other lawmakers said in a letter to the agency Jan. 31, 2018.
- Began to roll back payday lending regulation.
- The bureau announced Jan. 16 that it is reopening aregulation on payday lendersthat it finalized in October 2017, and advised companies that would be required to register under the rule to seek waivers.
- The rule, five years in the making, required payday lenders to verify the customer could pay back the loan, or provide a three payment “off ramp” to avoid a cycle of costly extensions.
- Cut funding for operations.
- Mulvaney sought no operating funds for the second quarter of 2018 in a letter to the Federal Reserve, which funds the CFPB’s operation, saying existing funds are adequate.
- The White House’s budget proposal for fiscal 2019 reduces the agency’s funding by $2.8 billion through 2023. Mulvaney, in addition to his role as acting CFPB director, also serves as head the White House Office of Management and Budget.
“No one believes that Mr. Mulvaney – who once called the Consumer Bureau a \u2018joke’ and said he wants to eliminate the agency – is looking out for the best interests of consumers,” said U.S. Rep. Dan Kildee, D-Mich., in a statement reacting to the appointment in November. “Rather, Mr. Mulvaney’s appointment fits a disturbing pattern by the President of appointing officials in charge of agencies they have vowed to eliminate.”
Asked to respond to the charge that Mulvaney is reversing the CFPB’s consumer protection role, an agency spokesman referred to public comments and statements including the strategic plan.
CFPB may change course again
Under his temporary appointment, Mulvaney can only continue as acting director until mid-year, according to experts on federal appointment law. White House nominees for the permanent director job will face Senate hearings and a confirmation vote.
Consumer advocacy groups are gearing up to screen nominees and mount resistance to those without pro-consumer credentials in the narrowly divided Senate.
Sen. Jeff Merkley, D-Ore., has launched a petition drive calling on Congress to protect the CFPB. Merkley is one of the backers of a payday lending bill introduced after the CFPB announced the rollback of its payday loan regulation, “Stopping Abuse and Fraud in Electronic Lending Act.”
In addition, a legal challenge to Mulvaney’s appointment continues in federal court. Leandra English, the agency’s deputy director picked by Cordray, has sued to oust Mulvaney, saying his appointment by the White House violates succession procedures in the Dodd-Frank Act.
After losing her case in U.S. District Court in Washington, English filed an appeal and request for expedited treatment with the D.C. Circuit Court of Appeals, which is set to hear arguments in April.
“Until the full judicial process has run its course, the bureau’s employees, the companies it regulates, and millions of American consumers will continue to suffer under a cloud of disruptive legal uncertainty,” her notice of appeal states.