WASHINGTON – The White House victory in a power struggle to control the Consumer Financial Protection Bureau, an agency that is supposed to keep average citizens from being exploited by banks, credit card companies and other lenders, will resonate in every state in the union.
Depending on which advocates you believe, President Donald Trump’s appointment of Mick Mulvaney as interim director of the bureau could mean that Minnesotans can look forward to indifference about consumer complaints from an industry-friendly director who once referred to CFPB as a bad joke. Or it could mean that Minnesotans will work with a fairer, more efficient agency that no longer writes its own rules and applies a broad-brush, business-bashing approach to every financial institution.
“CFPB has developed a very effective consumer response system,” said Prentiss Cox, who teaches consumer law at the University of Minnesota. “Companies know failure to respond could result in CFPB looking deeper at what’s happening at the company … But political opposition has been unrelenting since the day [the bureau] was born.”
The CFPB was created with enormous independence from political interference to give it leverage against one of the most powerful lobbies in the nation — the financial services industry. The bureau’s budget is guaranteed through the Federal Reserve, outside of usual Congressional funding.
But critics believe the arrangement is not working well. Republicans in Congress have offered dozens of bills to change CFPB governance and funding with an eye toward more control of an entity they say answers to no one.
Joe Witt, CEO of the Minnesota Bankers Association, said CFPB needs to tailor regulations to fit different-size banks. For instance, what’s needed in New York City may not be needed in Thief River Falls, Minn. The bureau should punish bad actors without punishing banks that did nothing wrong as it did in placing costly privacy regulations on all banks after a tiny percentage sold customer data, Witt said. Overall, he added, CFPB needs to show exactly how consumers benefit from its actions.
“The Obama administration did none of that,” Witt said. “We are hopeful that the new administration will regulate banks in a more effective way.”
Outgoing director Richard Cordray was free to act without Congressional approval on many matters. He did, writing and implementing rules that since July 2011 have, according to a CFPB spokesman, delivered roughly $3.9 billion in money returned to consumers, $7.9 billion in “principal reductions, canceled debts, and other consumer relief” and $473 million in “consumer relief as a result of supervisory activity.” An additional $600 million has gone into the bureau’s civil penalty fund.
CFPB’s enforcement efforts have included actions against student loan servicers and big banks, such as JPMorgan Chase, Wells Fargo and Minnesota-based U.S. Bank. In one high-profile example, the bureau fined Wells Fargo $100 million for creating millions of fake customer accounts.
Last week, CFPB’s public complaint database listed 10,561 consumer complaints from Minnesota, ranging from checking account problems to mortgage issues to debt collection. The number is up from 8,427 in May. Groups like the Minnesota Board on Aging routinely use CFPB brochures as educational resources to teach fraud prevention and occasionally refer clients to CFPB’s complaint resolution process.
Minnesota Attorney General Lori Swanson, a Democrat, said she has worked closely with CFPB on many issues. “Culture is more important than organization,” Swanson said. “You want to be an aggressive watchdog.”
CFPB usually ranks high in public opinion polls.
Now, Trump hopes to appoint a permanent director whom he can fire at any time for any reason. Meanwhile, the Trump administration’s anti-regulatory bent could affect the way Mulvaney does his interim job. Mulvaney has imposed a 30-day hiring freeze, but says he is not going to set the CFPB “on fire.”
Rep. Tom Emmer, R-Minn., is a cosponsor or sponsor of 17 bills meant to change the way the consumer watchdog operates. Among others, Emmer signed on to a bill that sought to let the president remove the CFPB director “with or without cause” and to take away the bureau’s ability to monitor “risks to consumers with respect to consumer financial products or services.”
“They passed all kinds of rules and got these huge settlements,” Emmer said. “They were told they had no jurisdiction over auto loans, but they did it anyway. They were told they had no jurisdiction over student loans and did it anyway. We are trying to hold them accountable. CFPB would be much better suited to a law enforcement role,” leaving other regulatory agencies to write consumer protection rules.
Republican Representatives Erik Paulsen and Jason Lewis did not respond to requests for comment.
Former Minnesota attorney general and state senator Hubert H. Humphrey III was among the first hires at the CFPB. As assistant director for financial protection of older Americans, he worked closely with financial institutions. They were cooperative, he said, but businesses that once had their way in most consumer dealings had “to get used to huge transfers of supervisory capacity.”
Humphrey, a Democrat, thinks the bureau has represented consumers splendidly. “The shouting you hear [from critics] is because they did represent consumers so well,” he said. He fears the Trump administration will change that. “The energy,” he said, “seems to be to undo things or do nothing [to address misbehavior in the financial industry].”
Sen. Amy Klobuchar, D-Minn., said having “someone who has publicly disparaged the agency run the bureau is a mistake that could eliminate [a] crucial check on our financial system.”
Among ideas floated for governing the CFPB is the appointment of several commissioners representing different views. Cox said that would make the consumer agency less vulnerable to the political whims of the White House or the majority party in the Senate and House. But it could also cause gridlock or an unwillingness to take on individual cases which is the situation at agencies such as the Federal Trade Commission (FTC).
“It is important to note that the Consumer Financial Protection Bureau will get involved in a complaint, whereas the FTC will not,” the Minnesota Board on Aging said in a statement.
Former Minnesota Gov. Tim Pawlenty, a Republican who now runs the Financial Services Roundtable trade group, believes Cordray’s departure allows for needed adjustments to be made.
“The Trump Administration and Congress should use this opportunity to improve the CFPB by adding a bipartisan board so key decisions are made in a bipartisan and transparent manner with more than just one person involved,” Pawlenty said in a statement to the Star Tribune. “Such a change would also likely eliminate concerns regarding the constitutionality of the CFPB’s current structure.”
An appeals court is deciding that issue after a challenge to the director’s authority by a mortgage lender fined $109 million by the CFPB for allegedly taking a kickback from mortgage insurers. The accused lender has the support of several financial services groups.
Changing the bureau’s governance and making the bureau’s less-than $650 million annual budget subject to Congressional approval will make CFPB answer more to the public, according to Emmer.
He hopes the new permanent head of the CFPB will be someone who enforces existing laws rather than makes new rules. “This is a bureaucracy growing faster than the weeds in my garden in summer,” Emmer said of the current CFPB. “It should be protecting consumers instead of affecting markets.”
Rep. Keith Ellison, D-Minn., said politicizing the consumer watchdog will make it vulnerable to elected officials doing the bidding of the very financial institutions the bureau is trying to police.
“The citizens of Minnesota and every other state are going to be worse off,” Ellison said. “Director Mulvaney is openly hostile to the CFPB. He was among the most vocal critics when it was created.”