Watchdog or lapdog: The future of the CFPB is in doubt

Arcane rules governing who should become the acting director of the Consumer Financial Protection Bureau (CFPB) have received a lot of attention since Richard Cordray stepped down as director in mid-November.

But the only issue that really matters is whether or not the CFPB will continue to serve as a watchdog protecting consumers of a wide range of financial services or whether it will become a lapdog doing the bidding of major financial institutions.

{mosads}As has been widely reported, the CFPB has done a lot of good for consumers. Since the CFPB’s creation in 2011, the bureau has generated $29 billion in restitution for 12 million victimized consumers and has processed more than one million consumer complaints.

It has created common sense rules like requiring lenders to ensure that borrowers have the ability to repay their loans and restricting the types of predatory products and practices that led to the financial crisis in 2008. The CFPB has been doing its job, and that is exactly why the industry and its friends in Washington want to derail it.

The CFPB has had a bullseye on its back since its inception. Two “alternative facts” have been offered time and again to justify a U-turn at the bureau:

Critics first point to complex rules that they say are choking off the flow of credit. Second, they believe the bureau to be unaccountable to any elected body, including Congress and the president.

Several proposals are in the works right now to cut back on rules the bureau has created, to give Congress authority over its budget and to take other steps to curtail its impact.

But as American Banker reported in March, “Consumer credit has roared back in the six years since Dodd-Frank, with a 46-percent jump in outstanding consumer credit to $3.8 trillion…And the fact remains that mortgage, auto and credit card lending have all gone up since 2010.” The CFPB is needed now more than ever.

Sadly, it’s not looking good for the bureau. Trump’s choice for acting director, Mick Mulvaney, has referred to the CFPB as a “sick, sad joke” and has criticized it for being “completely unaccountable.” But he’s got his facts wrong.

The director is accountable to the president, who can fire the incumbent if he or she is failing to fulfill the responsibilities of the office. It was just such independence that was purposely built into the CFPB at its creation so that it would be effective in protecting the legitimate interests of consumers.

Congress also has the authority, which it has used, to strike down rules issued by the bureau. Just in October, Congress rejected a rule that would have granted borrowers the right to file class action lawsuits.

There is something puzzling about the furor and contempt that the CFPB seems to generate. Its only fundamental mission is to assure that markets are truly safe, fair and free. There is no call to nationalize the banks, break up financial institutions or create any systemic alternative to traditional, market-based institutions.

The bureau was born in the wake of the worst financial crisis since the Great Depression and one of the objectives was to reduce, if not eliminate, the possibility of a recurrence of those dark days.

But memories, particularly in this political age, seem to be short. It was just a few years ago that the nation’s largest financial institutions had to be bailed out by taxpayers to keep the world’s financial system from crashing. Getting rid of Dodd-Frank or just clipping the wings of the CFPB runs the risk of returning to the Wild-West days that cost so many so much.

The CFPB is simply doing its job. It is in the interests of virtually all consumers, financial institutions and the economy generally, to let it continue to do so. With Mulvaney assuming the role of acting director and Trump to follow by appointing a permanent director, the immediate future is challenging.

The CFPB continues to be contested terrain but it has demonstrated that it can be an effective protector of consumers of a wide range of financial services. But that won’t happen by itself.

As Sen. Elizabeth Warren (D-Mass.), the inspiration for the creation of the CFPB, observed, “For me, the watchword is vigilance. Together, we must make sure the agency can do its job.” 

Gregory D. Squires is professor of sociology and public policy & public administration at George Washington University and coauthor, with Larry Kirsch, of “Meltdown: The Financial Crisis, Consumer Protection, and the Road Forward” (Praeger 2017).