The CFPB Still Gunning for Payday Loans, Despite Trump
Many thought that the change of guard from a democratic to a republican president would cause the agency to be gutted, resulting in decreased regulations, but the CFPB is still gunning for payday loans, despite Trump being in office.
After the Great Recession swept the nation, legislators were eager to avoid a repeat. To protect consumers, they enacted Dodd-Frank, which is an act featuring sweeping financial-regulation legislation. Part of this act was establishing the Consumer Financial Protection Bureau or CFPB. This is an agency created to oversee financial institutions by making sure that they’re operating in the best interest of the consumer.
Even with Trump Running the Show, the CFPB is Still After those who provide Bad Credit Payday Loans
While Trump has repeatedly vowed to dismantle the CFPB, the agency operates independently, making this a promise that’s hard to keep. According to The New York Times, Senator Elizabeth Warren first proposed the idea of the agency in an article that she wrote in 2007. Her plan was to establish a bureau that oversaw financial products and services in the same way that the Consumer Product Safety Commission makes sure that merchandise is safe for the country’s consumers.
Since the majority of Congress was onboard with the creation of a new financial oversight agency following the Great Recession, it gave its approval for the establishment of the agency. To protect it from political meddling, the CFPB is funded by the Federal Reserve. This means that it still has the power to go after the lenders of bad credit payday loans with Trump in office.
Working Under a Hostile White House
Richard Cordray, the agency’s director, responded to Trump being inaugurated by saying, “It really shouldn’t change the job at all.” While Wall Street saw the Trump win as a major boon for financial firms and other companies that work within the financial sector, when it comes to Trump, nothing is guaranteed. Scott Pearson, a partner for the Los Angeles law firm Ballard Spahr, which represents financial firms and deals with the CFPB frequently, said, “I think there is some uncertainty. We’ll see what he follows through on.”
The Los Angeles Times reports that Trump has yet to clarify how he would change regulations for big banks, small financial institutions and other financial firms. According to Brian Gardner and Michael Michaud, analysts for the brokerage and investment bank Keefe Bruyette & Woods, Trump is likely to select financial regulators for the country who are “more industry friendly than regulators appointed by President Obama.” This could bring about decreased regulations for payday loan lenders and other financial institutions.
The Lenders of Payday Loans May See Relaxed Regulations
Because Trump is interested in improving the financial environment for businesses, a more relaxed environment could be on the way for the lenders of payday loans as well as for money managers, consumer lenders, specific instruments such as personal loans San Antonio and other financial firms. Most industry experts think that despite Trump’s new gig, a total appeal of Dodd-Frank is unlikely. While republicans have control over the house and the senate, democrats still hold enough senate seats to block an appeal of the act.
With Dodd-Frank still in place, big banks are required to maintain more capital. Financial institutions are also facing additional regulatory scrutiny and limitations when it comes to return capital for their shareholders.
Living to Fight Another Day
Because of the bureau’s popularity, Washington’s strategy has been to defang rather than undo the CFPB. One popular plan is to replace director Richard Cordray with a five-person bipartisan commission that would vote on regulatory action. This change would cause the agency to become another dysfunctional bureau that’s unable to get anything done. Another bill seeks to change how the agency obtains its funding by shifting it from automatic funding through the Federal Reserve to asking for money from Congress.
Slate reports that the Trump administration may attempt to diminish Dodd-Frank with the Financial CHOICE Act. The bill doesn’t do away with Dodd-Frank completely, but it does seek to undo several provisions that the banking industry doesn’t like. For instance, the Financial CHOICE Act would eliminate the requirement that failing banks must use orderly liquidation authority. The bill would also get rid of the stress test system that banks must currently pass.
Does the CFPB have enough support to survive Trump’s years in office? Bad credit payday loan lenders, big banks and other lenders certainly hope not. In fact, legislators Ted Cruz and John Ratcliffe have both introduced bills that would simply dismantle the agency. However, a recent poll shows that everyday citizens who still support Trump want legislators to leave the bureau as it is by a 2-to-1 margin. Not only do they want it to be able to continue regulating financial institutions, but they also want the agency strengthened. This is the kind of report that gives the CFPB the encouragement it needs to fight another day.
Support from a Powerful Senator
With Senator Elizabeth Warren fighting to keep the CFPB intact, the lenders of bad credit payday loans have reason to worry. One Republican congressional staff member said, “Democrats who used to work with us are scared to death of crossing Warren.” Dennis Kelleher, the president for Better Markets, an organization that fights for tougher regulations of financial institutions, said, “I’d be more worried about the CFPB if there wasn’t a Black Hawk helicopter circling it manned by Elizabeth Warren.”
The agency appears to be resisting Wall Street by taking its regulatory watchdog job seriously. A few years ago, the bureau forced Bank of America to give $727 million back to customers for deceptive marketing and unfair billing. It also discovered that Citibank was engaging in similar activities. A year later, the big bank had to return $700 million to its customers. As of 2011, the CFPB has returned almost $12 billion to an estimated 29 million customers.
Even if Warren and her buddies are able to block legislative efforts to undo the CFPB, Trump will still be the guy who decides Cordray’s replacement. This is likely good news for the nation’s major financial institutions and fringe lenders like those that are in the pay day loan business.
The Lenders of Payday Loans Are Not Out of the Woods
Unless Trump mounts a full-on attack against the CFPB, the agency will continue to enact regulation against the lenders of payday loans. Senator Elizabeth Warren is using her significant influence in Washington to keep the agency operating as it was designed to do while those who oppose the CFPB are struggling to find the right way to decrease the bureau’s power.