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U.S. Consumer Financial Agency Could Be Defanged Under Trump

November 11, 2016

The election of Donald Trump could lead to a radical change in the U.S. Consumer Financial Protection Bureau (CFPB) as we know it today.  The brainchild of Senator Elizabeth Warren (D-MA), the agency was created by authorization of the Dodd-Frank Wall Street Reform Act and began operations in 2011.


The CFPB has a single director who leads both rule-making and enforcement. That director can be dismissed only for cause. Furthermore, the agency is funded by the U.S. Federal Reserve system, which means it is not dependent on the typical congressional appropriations process.


Yet, a Trump administration is expected to be hostile to the agency as it is currently formulated – and it probably would pursue recent actions by Congress and the federal appeals court that would significantly weaken the CFPB.


The Republican-led House of Representatives Financial Services Committee in September passed legislation that would change the name and structure of the agency and would create a 5-member commission to govern it. Republicans also have pushed for the agency to receive funds from Congress to make it accountable to elected leaders. Obama, however, has blocked these Republican efforts with veto threats.


In October, a 3-judge federal appeals court panel ruled that the agency's structure unconstitutional and that the president should be able to dismiss the director at will. That decision jeopardizes many of the agency's rule-making actions that have enraged critics – e.g., a proposal to stop companies from blocking customers from class action lawsuits and another one to limit payday lending. The ruling is on hold while the CFPB decides whether to seek a review or appeal of that ruling. Trump's administration could withdraw any appeal, letting the decision stand.


Few in the banking industry think the entire agency will be eliminated. Democrats who support the agency will have a large presence in the Senate. Warren, who was Obama's first choice to head the agency, has promised that Democrats will fight efforts to defang it. Richard Hunt, president of the Consumer Bankers Association, said his group would fight to maintain the CFPB in some form because it consolidates consumer banking rules under one regulator.