Shiv K. Patel

Following the Financial Crisis, Congress took what was considered strong action at the time by enacting the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173). Part of this legislation created the Consumer Financial Protection Bureau, an agency that has caused controversy across Washington for a number of reasons. The agency is tasked with promulgating regulations with the goal of protecting consumers from what it deems to be abusive financial instruments. It is also able to investigate financial institutions for the purpose of obtaining information on consumer-related business.

After a calamitous financial crisis, many hoped the CFPB would serve as a watchdog on behalf of everyday consumers of the financial system. However, with the new Trump administration, it appears that the CFPB is going to take a very different form from what was originally anticipated. In a new strategic plan recently released by the Trump administration, Acting Director Mick Mulvaney explicitly states that he intends to ensure that the agency complies with the bare minimum of statutory responsibility permitted. In combination with this, the administration’s recently released proposed budget calls for capping funding for the agency at FY 2015 levels and reducing the amount requested by the Obama administration by $145 million.

The unanswered question that persists is what will be the end result on consumers from the desire of the administration to undermine the agency. Some, like former Obama-era CFPB Director Richard Cordray, believe that the fundamentals of the agency will stand the test of time. Others are hopeful that Mulvaney’s maneuvering will lead to a leaner and less stringent agency.

On October 5, 2017, the CFPB finalized a rule targeting payday loan debt traps by requiring lenders to determine upfront if debtors will be able to afford to repay these loans. The rule also limited how often and how much consumers were able to borrow from these institutions. However, after the installation of Mulvaney as director, the agency announced that it would be “reconsidering” the regulation. In the time that the rule was in place, it appeared to be having success. Annual payday lending revenue dropped by nearly $4 billion compared to 2012, according to data from the Center for Financial Services Information.

The potential revocation of this rule comes at the same time that Mulvaney continues to show a desire to dismantle the enforcement abilities of the agency. The lasting question that will continue to remain is what will be the eventual effects, if any, on average consumers.

The new goals of the agency appear to line up with the environment of deregulation found during the second Bush administration. With the hope of advancing nothing more than the benchmarks set forth in Dodd-Frank, Mulvaney’s CFPB will continue to deregulate with the stated goal of ensuring that all consumers have access to markets for financial services. This could conceivably lead to loan bubbles forming as financial institutions give out loans where consumers are not fully informed as to the risk. The potential for overleveraged institutions is not out of the question.

Many more banks used to play a role in the payday lending industry. However, several left the market in anticipation of regulatory crackdowns. The administration is hoping other banks will join in the market in order to provide more competition and fairer practices for consumers. Potentially as part of this effort, the Office of the Comptrollers of the Currency repealed a bulletin discouraging the practice of granting payday loans.

Based on this, the payday loan industry gets to live on for some time longer. The writing was on the wall that such a move would come when the Mulaney-led CFPB last month announced that it would be dropping a lawsuit against a cohort of payday lenders. Accusing the lenders of failing to disclose the true costs of the loans (which could carry annual rates of 950%), the agency asked for the case to be dismissed without any explanation.

It remains to be seen what areas of the financial industry Mulvaney will look to next to carry out the administration’s agenda. Consumers can probably expect for further deregulations to occur in conjunction with larger goals the administration seeks to achieve. This may not spell the doom and gloom that many of the president’s political opponents claim. There is potential for such a scheme to force broader competition and more consumer choice. The opportunity for Mulvaney and the administration to establish the future of the fledgling agency is ripe for the picking. What they choose to do with this opportunity will go a long way in defining the future of the agency and the legacy of Mulvaney and the president.