July 21, 2011 marked the first day of one of the most unique and powerful regulators in government.
But now with five years of ruling under its belt, the entity designed to fix one of the worst financial crises in America’s history might not be around much longer, at least not in the same capacity the mortgage industry has come to know.
The bureau had humble beginnings and was built as a solution after the financial crisis to ensure that it would never happen again. Its purpose, according to its website is “to make consumer financial markets work for consumers, responsible providers, and the economy as a whole.”
“We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information and stepstools that they need to make smart financial decisions,” the site concludes.
While that mission seems straightforward, the past five years have been anything but.
Both sides of the political aisle go back and forth with praise or distaste for the way the bureau is run. And given that Congress doesn’t govern the bureau, it leaves the door wide open for debate on its authoritative power. Even when the CFPB opened, it was met with a great deal of controversy.
A thorough background can be found here, but for a quick review. the CFPB was born out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which also has its sixth anniversary today. And in many ways, it is the brainchild of Sen. Elizabeth Warren, D-Mass.
In September 2010, the Obama administration appointed Warren to serve as the architect of the bureau, and while she was a top candidate to lead the bureau, the role of director eventually went to former Ohio Attorney General Richard Cordray.
In light of the CFPB’s anniversary, Warren posted this Happy Birthday video (see below) for the bureau. Even in her small clip wishing the bureau congratulations, it’s easy to see the ongoing struggle to keep it in existence.
She congratulates those that helped fight to create the CFPB saying, “together you overcame an army of banking lobbyists that were spending over a million dollars a day to try and bury that agency deep in the ground. And look at what that little agency has done in just five short years…”
Warren isn’t the only supporter fighting to keep the bureau alive. Sen. Sherrod Brown, D-Ohio, put out the following statement:
“The CFPB has made consumer financial products safer and better for consumers – but its work is not finished. The bureau is working on rules to oversee prepaid cards, debt collection, arbitration, and predatory payday loans that trap many low-income families in a vicious spiral of debt. I will continue pushing the CFPB to strengthen and finish its proposed rules to crack down on payday lenders who prey on Ohio families when they are at their most vulnerable.”
Echoing similar praise, Rep. Maxine Waters, D-Calif., said, “The CFPB has been remarkably successful despite a concerted Republican assault on the agency that is intended to prevent the CFPB from doing its job.”
“These relentless attacks on the CFPB reflect the much larger and incredibly misguided Republican deregulatory agenda that would give special interests a leg up and make it harder for every day Americans to get ahead. That’s why we must stop any effort to weaken the CFPB or to roll back the critical Wall Street reforms that have made our economy fairer, safer, and stronger,” she concluded.
But these “relentless attacks” are gaining steam, especially since it’s an election year and laws could significantly change if a Republican takes office.
On Monday night at the Republican National Convention, the Republican Party approved its 2016 party platform, which included changing the structure of the CFPB.
“The worst of Dodd-Frank is the Consumer Financial Protection Bureau, deliberately designed to be a rogue agency. It answers to neither Congress nor the executive, has its own guaranteed funding outside the appropriations process, and uses its slush fund to steer settlements to politically favored groups,” the Republican platform states.
“If the Bureau is not abolished, it should be subjected to congressional appropriation. In that way, consumer protection in the financial markets can be advanced through measures that are both effective and constitutional,” the Republicans state. “Any settlements arising from statutory violations by financial institutions must be used to make whole the harmed consumers, with any remaining proceeds given to the general Treasury. Diversion of settlement funds to politically connected parties should be a criminal offense.”
The platform also reiterated several points of the recently released Republican-crafted plan to repeal and replace the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Part of that plan involves changing the structure of the Consumer Financial Protection Bureau to replace the agency’s director, a position currently filled by Cordray, with a bipartisan commission, and changing the CFPB’s funding mechanism to bring the agency’s budget under Congressional oversight.
Jennifer Lee, a partner at the international law firm Dorsey & Whitney in its banking and financial services practice and a former CFPB enforcement attorney, gave a little more insight to the way the bureau operates and how it plans to operate should it make it to its six-year anniversary.
“The reason the CFPB is one of the most powerful and aggressive agencies in the country is because of the broad grants of statutory authority in Dodd-Frank, plus the manner in which the Bureau has exercised them. It is a constant feedback loop — with each successive new development, the agency gets emboldened to do more. The current appetite for increased enforcement is not going to change, and the prolific agency will continue ramping up its litigation docket in the coming years, regardless of what happens in the elections this fall,” Lee says.
“The agency's genetic makeup -- embedded in its culture and internal structure — is set up to continue pursuit of aggressive consumer protection measures regardless of external Hill pressure,” Lee says.
“Rather than regulatory or legislative pushback, the industry will be well-served to closely watch what federal judges do to reign in the authority of the CFPB, which is also more frequently being challenged in litigation as a natural consequence of many factors, including non-public investigations ripening into public actions these last five years,” Lee says.
For now at least, happy birthday CFPB.