Banks and other financial services firms face a more sure-footed Consumer Financial Protection Bureau that has weathered constitutional challenges, leadership changes, and political sniping in its first decade.
The CFPB marks its 10th anniversary Wednesday, capping a tumultuous period in which it established landmark mortgage rules after the financial crisis, attempted to regulate payday lenders, and collected $14 billion from enforcement actions—all while fending off legislative and legal attempts to curb or even eliminate the agency.
The bureau also saw a major shift in leadership and priorities, from a more aggressive director appointed by President Barack Obama to leaders installed by President Donald Trump who pulled back on both rulemaking and enforcement. The agency’s independent funding and 1,500-strong workforce remained in tact, however.
With its awkward growth stage out of the way, banks and other consumer finance firms will have to be on guard for robust CFPB enforcement and supervision no matter which party is in power, said Christine Hines, the legislative director at the National Association of Consumer Advocates.
“The industry should be at a place now where it knows that there’s a federal agency whose aim is to protect consumers, regardless of the political leadership,” she said.
Cop on the Beat
Although Trump’s CFPB directors—Mick Mulvaney and Kathy Kraninger—were widely viewed as easing up on enforcement, the bureau wasn’t dormant during their tenure.
The CFPB secured a $500 million fine against
The rest of the Trump-era enforcement actions were largely against small fraudsters, and the agency nixed some key rules like tough new lending standards for payday loans.
But the CFPB didn’t go away during the Trump administration. And some things, like its public consumer complaint database, saw improvements and increased usage under Kraninger’s watch.
That’s evidence of the CFPB’s staying power.
“One of the CFPB’s biggest accomplishments over the years is that it’s still alive and kicking,” said Allison Schoenthal, a partner in Goodwin Procter LLP’s financial industry group.
“No one is letting their guard down right now,” she added.
The agency’s current stability is a marked change from the uncertainty it operated under during the Obama administration and in the early days of the Trump administration.
The CFPB was under siege before it even opened its doors in July 2011, with its opponents challenging its single-director leadership structure as unconstitutional. The 2010 Dodd-Frank Act said the president can only fire the director for cause—not at-will—which Republicans and industry opponents said gave the agency too much unchecked power.
Legal arguments that the CFPB’s structure violates the Constitution’s separation of powers clause worked their way into company defenses in CFPB enforcement lawsuits. The bureau itself was sued by a small Texas bank and a conservative think tank in 2012.
The CFPB quickly earned a reputation for aggressive enforcement and tough supervision under its first director, Richard Cordray, but the legal challenges actually stalled the bureau’s work, said Jenny Lee, a former CFPB enforcement attorney.
“It probably slowed the agency officials down in the time that it takes to have to do filings and respond to court arguments, of course,” Lee, now a partner at Arent Fox LLP, said.
Ultimately, the U.S. Supreme Court in June 2020 ruled in Seila Law LLC v. CFPB that the bureau’s structure was unconstitutional, but quickly fixed the defect by making the director an at-will employee of the president.
While there is still some active litigation over actions the CFPB took prior to the constitutional fix, the fight is all but over, eliminating a complication for bureau staff, Lee said.
Aside from legal challenges, the CFPB also faced a barrage of political opposition from its earliest days.
Republican lawmakers and some in the industry said the new agency was too powerful and unaccountable, noting its single director and responsibility for 18 key consumer finance laws inherited from the Federal Reserve and other regulators.
They also pointed to the CFPB’s broad Dodd-Frank powers to go after “unfair, deceptive and abusive acts and practices” in the financial industry. Critics also cited the agency’s independent funding that went through the Federal Reserve and didn’t require congressional approval.
But repeated legislative attempts to turn the CFPB into a commission, sever its independent funding, and curb its powers ultimately failed during the Obama administration. They also didn’t gain ground during the Trump years, even during Republican control of the House and Senate.
“They tried hard to break it. And they failed,” Sen. Elizabeth Warren (D-Mass.) said at a July 19 event hosted by consumer advocates celebrating the CFPB’s 10th anniversary.
The former Harvard law professor led the Obama administration’s efforts to stand up the bureau in 2010 and 2011 before handing the reins to Cordray, who became CFPB director under a recess appointment. He wasn’t confirmed to the post by the Senate until 2013 amid intense opposition from Republicans.
The agency’s growing acceptance as a financial regulator doesn’t mean that opposition has subsided entirely, said Quyen Truong, a former top CFPB attorney and now a partner at Stroock & Stroock & Lavan LLP.
“The CFPB will continue to stand out as being subject to unusually high levels of political heat, as compared to other regulatory agencies,” she said.
The bureau is working with an acting director, David Uejio. A confirmation vote for Rohit Chopra, President Joe Biden’s nominee to be the bureau’s full-time director, has been delayed for months amid Republican opposition.
To some in the industry, that highlights the continued risks of the bureau having a single director rather than a five-member commission like the Federal Trade Commission or Federal Deposit Insurance Corp.
“Subject to the pendulum swings of changing administrations, the bureau’s single-director governance structure too often centers around politics in Washington rather than the very people it was created to protect – the consumer,” Richard Hunt, the president and CEO of the Consumer Bankers Association said in a statement to Bloomberg Law.
Chopra, currently an FTC commissioner, is expected to be take a tougher enforcement stance than his Trump-era predecessors. He’s expected to go after consumer credit bureaus, mortgage and student loan servicers and other firms that didn’t adequately follow pandemic-related consumer relief.
Racial equity and fair lending are also expected to be high on Chopra’s enforcement and regulatory agenda.
For the time being, at least, the CFPB should have some room to run, Lee said.
“With Democrats in the White House and their concentrated powers in the House and the Senate, it will just be easier for the bureau to more effectively carry out its mandate in the statute, which is incredibly broad,” she said.