With Trump President, Is Obama’s Plan to Kill Installment Loans Now Dead?
As you may know, the CFPB has proposed sweeping new regulations for short-term, small-dollar installment loans that could effectively eliminate these types of loans. Although the Dodd-Frank and the CFPB have received a great deal of support from President Obama as well as Clinton, Trump has repeatedly vowed to “dismantle” both the agency and the Dodd-Frank. This has led to speculation that Trump’s election may be a death blow to Obama’s plan to kill non-collateralized personal installment loans.
How Trump’s Election Could Doom Obama’s War on Installment Loans
In October 2016, a federal appeals court ruled that the CFPB was structured in an unconstitutional manner. The court ruled that a federal agency under the control of a single executive violated “settled historical practice” and posed a greater risk of abuse of power as well as arbitrary decisions.
One part of the ruling that could prove empowering to Trump is that the court ruled that the director of the CFPB was not only subject to presidential oversight and direction but could also be replaced by the president for any reason. Theoretically, if Trump wanted to stop the CFPB’s war on installment loans, he could fire the director and replace him with an appointee who shares Trump’s dislike of the agency and the Dodd-Frank Act.
However, it is not likely that Trump will take such a drastic action immediately upon assuming office. He may choose to use other powers to undermine the agency’s attempts to regulate the small-dollar loan industry. The most likely power he will invoke is to issue a moratorium on new regulations, effectively halting the CFPB’s pending rules on payday, title and installment loans.
The Dodd-Frank Act Is Key to CFPB’s Power
It is impossible to discuss the CFPB’s pending regulations on installment loans without discussing the Dodd-Frank Act. Although Trump has repeatedly vowed to dismantle Dodd-Frank and replace it with better policies, a president does not have the power to overturn a bill that has already been signed into law. Since the Dodd-Frank is the law that authorized the creation of the CFPB and defined the agency’s powers, Trump could be facing an uphill battle if he remains committed to abolishing Dodd-Frank.
One opponent of Trump’s plan to overhaul the Dodd-Frank is Janet Yellen, the current chair of the Federal Reserve Board. Just days after the election, Yellen made a regularly scheduled appearance before the Joint Economic Committee. As MSN reported, when responding to a question, Yellen delivered a defense of Dodd-Frank in what some see as a notice to Trump that he should revise his plans to overturn the law. Yellen also stated that she has no intention of resigning before her term ends in 2018.
Trump has not been shy to express his feelings about the job that Yellen has been doing. Prior to the election, he told Fortune that he would likely not reappoint her when her term ends. Although he has stated that she had done a “serviceable job,” he feels that Yellen is “beholden” to Obama and that she has allowed politics to influence her decisions.
Opposition to Trump’s plan to dismantle the Dodd-Frank Act will likely be led by Sen. Elizabeth Warren. Prior to her election, Warren was appointed by President Obama to set up the CFPB, and she has always been fiercely protective of the agency. According to Bloomberg, Warren visited CFPB headquarters the day after the election.
While there, staffers who heard her remarks stated that she had vowed to fight any attempts to change any of the rules that the agency was currently working on, including pending regulations on installment loans, as well as attempts to alter the structure of the agency. Warren has been quite active on Twitter, posting that the attacks on the CFPB are coming from “Wall Street banks and their GOP friends” and that the real reason for the attacks is that the CFPB is working so well for consumers.
Warren’s opposition is important because changes to the existing law will require the approval of Congress.
Although the Republicans are the majority party in the Senate, they lack the 60 votes needed to be filibuster-proof. This means that at least some Democrats would need to support any plan that Trump and the Republicans introduce that would alter the Dodd-Frank. Given the divisive nature of the election, it seems highly unlikely that a substantial number of Democrats would ally themselves with Trump.
Can Trump Sink the CFPB’s Rules on Bad Credit Installment Loans?
Trump’s statements regarding his plans for the CFPB and Dodd-Frank have been met with widespread opposition. Having Warren and Yellen opposing him will not help his efforts to make sweeping reforms, so it would be surprising if he attempts any major overhauls. However, in addition to slowing proposed CFPB regulations on installment loans to a crawl, Trump might be able to enlist support from some unexpected sources.
• According to an article in Credit Union Times, the National Association of Federal Credit Unions has always opposed and challenged the authority of the CFPB to regulate credit unions. Although the NAFCU is more interested in being ruled exempt from regulations enacted by the CFPB than protecting the rights of lenders making bad credit installment loans, the support of the NAFCU certainly would not harm Trump’s goals.
• Another respected association, the Independent Community Bankers of America, has also gone on record as opposing the regulations proposed by the CFPB. Like the NAFCU, the ICBA fears that the burden of the new regulations will force them to stop making small-dollar installment loans. In a letter to the CFPB, the ICBA notes that since most of their members are locally owned banks with strong community ties, they develop close relationships with customers that allow them to be somewhat flexible in their underwriting requirements. The CFPB regulations would strip ICBA members of their power to make such loans. The ICBA reports that it has 51,000 locations with $3.9 trillion in assets, so the association could be a good ally for Trump to cultivate.
• The CFPB has not been the only agency investigating lenders offering installment loans online and traditional payday loans. The Federal Trade Commission has been active in investigations involving lenders affiliated with Native American tribes who made payday and installment loans online. The Justice Department has targeted banks and other payment processors that handled the deposits for companies making online installment loans. Many of the activities were coordinated by one of Obama’s creations, the Financial Fraud Enforcement Task Force. The task force was created by an executive order, which Trump could repeal immediately. Alternatively, Trump could create his own task force with different priorities.
What Trump will actually do about the pending regulations targeting online installment loans, payday loans, title loans and other types of small-dollar loans remains to be seen. Considering his vehement statements regarding the CFPB and Dodd-Frank, however, it is quite possible that the billionaire president may prove to be the champion of small-dollar, short-term installment loans.
The issues discussed are far from simple, so if you would like to learn more about any of them, visit the Personal Money Store to find informative, intelligent discussions of the various topics.