The Consumer Financial Protection Bureau (CFPB) was created as part of the Dodd-Frank Bill that reformed financial practices following the abuses that led to the Great Recession. Republicans have made no secret of the fact that they want to get rid of those reforms and once again let Wall Street run loose. But they have particular disdain for the CFPB. It’s worth unpacking why that is the case because it informs the current battle over who is in charge of the bureau.
The CFPB was set up to be a watchdog of the financial services industry in order to protect consumers. To get an idea of how that works, here are some examples of what they’ve accomplished:
In one of the largest bank scandals of the decade, Wells Fargo employees were caught establishing approximately 1.5 million false savings and checking accounts, presumably to meet sales goals. They also opened up more than 500,000 credit cards, usually without customer approval. The fraud was uncovered by The Consumer Financial Protection Bureau (CSFP), a federal agency…
In June, the Consumer Financial Protection Bureau uncovered discriminatory lending practices by BankcorpSouth. According to the Department of Justice, CFPB alleged “that BancorpSouth Bank violated the Fair Housing Act and Equal Credit Opportunity Act (ECOA) by using policies and practices that unlawfully discriminated against African Americans and other residents of predominantly minority (communities).” The Consumer Financial Protection Bureau took the uncommon practice of using “secret shoppers” in its investigation. The settlement agreement dictates that BancorpSouth pay millions of dollars in relief and civil penalties.
All told, in the first six years of the bureau’s existence (2010-2016), it has taken actions that resulted in nearly $12 billion in relief for more than 29 million harmed consumers. They have been able to remain aware of emerging unfair, deceptive, and abusive practices because their on-line complaint system and database that has handled more than 1.2 million consumer complaints. In other words, they provide a direct line for consumers to access their services.
One of the primary activities of the CFPB is to oversee the implementation of the Dodd-Frank reforms made to the mortgage industry to prevent the kinds of abuses that led to the foreclosure crisis during the Great Recession. Camille Galles summarized the crucial role the bureau is playing on that front.
If the CFPB’s mortgage regulations had existed before 2008, lenders would have been unable to issue the subprime loans that led to the collapse of the housing market, and mortgage servicers potentially would have been able to prevent millions of unnecessary foreclosures. The crash and ensuing recession ultimately affected all Americans—not just the ones who had taken out mortgages. When American consumers are protected, so is the entire U.S. economy.
If there was any actual populism associated with the Trump administration, that kind of success would be heralded. But by now we all know that this president has joined the rest of the Republican Party in doing all they can to weigh in on the side of Wall Street to protect their interests as opposed to those of consumers.
Beyond CFPB’s significant accomplishments, there is one important element to the structure of the bureau that has led to its success. It is at the heart of the battle being waged over who will be in charge now that Richard Cordray has resigned.
The structure and independence of the CFPB is essential to its success. Unlike many commissions that face significant gridlock when they seek to take action, the CFPB is governed by a single director rather than a multiperson board. Additionally, independent funding allows the CFPB to focus on protecting consumers rather than kowtowing to financial services lobbyists.
That explains both the genius of the bureau’s design as well as its single most significant threat to the financial services industry. Due to its independence, CFPB has been able to take action while being protected from the influence of political agendas and lobbyists. By assigning Budget Director Mick Mulvaney to run the CFPB, Trump has not only put someone in charge who called it “flawed,” “completely unaccountable,” and an “awful example of bureaucracy,” he has undermined the very independence that made the bureau such a success.
In one sense, Mulvaney is right. Yesterday he made a point of saying that the CFPB of the Trump administration will bear little resemblance of the CFPB of the Obama administration, because elections matter. Ultimately, the goal of “deconstructing the administrative state” that we’ve seen happen in every federal department over the last year will take its toll eventually on the CFPB. What we are witnessing in this case is yet another way that Trump is the opposite of a populist and doesn’t care about the so-called “forgotten man.” Those who bought into his lies will join the rest of us in paying the price.