The Consumer Financial Protection Bureau was created following the financial meltdown of 2008. Authority to create the CFPB came from the passage of the Dodd-Frank Act, support for which was sharply divided along party lines: Democrats loved it, but Republicans despised it. Over the years, Republicans have made repeated attempts to rein in the CFPB’s powers, repeal the Dodd-Frank or bring the CFPB under congressional control, but all efforts have failed. One of the most controversial actions of the CFPB has been its targeting of payday loans. Now that the elections are over, many people are wondering what President Trump will do about government regulations on payday loans.
What President Trump’s Election Means for Government Regulation of Payday Loans
Trump is certainly no fan of Dodd-Frank. As reported by the Washington Examiner, Trump has vowed to repeal, dismantle or drastically alter Dodd-Frank no fewer than seven times during his presidential campaign. He has referred to Dodd-Frank as “a disaster in so many different ways,” “terrible” and in need of “something close to dismantling.” He has charged that Dodd-Frank has allowed regulators to run the banks, decreased the access to credit for everyone except the wealthy, stifled business and slowed economic growth.
Although Trump has not specifically addressed payday loans and the pending regulations proposed by the CFPB, he obviously shares the antipathy for the agency and the Dodd-Frank that his fellow Republicans have demonstrated for years. Republicans have long expressed concerns over the agency’s lack of accountability and stated that the CFPB is overly powerful.
What Is Trump Likely to Do About Regulating Payday Loans?
Considering the statements he has made about the CFPB and Dodd-Frank, it is likely that President Trump will attempt to undermine all of the CFPB’s efforts to regulate payday loans. Repealing Dodd-Frank would require congressional action, but with the Republicans controlling both houses, the possibility exists that a vote to repeal could pass. Regardless, there are some things that could be done that Trump could handle under his own authority.
According to TheHill.com, Trump could shelve any CFPB regulations that have not been finalized, including the pending initiative regulating payday loans. Alternatively, under his administration, initiatives that are in the pipeline, including the new rules for payday loans, could be slowed down substantially.
There is also widespread speculation that Trump might replace Richard Corday, the current director of the CFPB. As originally stated, the director could only be removed for cause, which was defined as neglect of duty, malfeasance or inefficiency. However, as reported by the New York Times, a federal appeals court ruled in October 2016 that the structure of the CFPB was unconstitutional, giving virtually unchecked power to a single individual. As a solution, the court gave the president the power to fire a CFPB director “at will” or for any reason, and it granted the president the power to direct the actions of the agency’s director. In its opinion, the court stated that “an independent agency exercising substantial executive authority” has never been headed by a single individual.
Corday’s term is due to expire in 2018, but if Trump decides to replace him sooner, he could probably gain approval for his nominee with relative ease. However, he could also choose to wait; legislation has already been introduced that would have the CFPB run by a bipartisan, five-person board rather than a lone director. The move to such a board is supported by several financial services companies and organizations, including the Consumer Bankers Association.
Appellate Court Ruled CFPB Overstepped its Bounds
In 2014, the CFPB fined mortgage lender PHH Corporation for referring borrowers to insurers who then purchased reinsurance from a subsidiary of PHH. The CFPB claimed this practice was tantamount to illegal kickbacks. However, the Department of Housing and Urban Development had deemed the PHH practice legal years ago. The CFPB decided to ignore HUD’s interpretation and substituted its own, requesting the new interpretation retroactively to cover almost 20 years of PHH transactions.
Originally, a CFPB in-house judge fined PHH a “mere” $6.4 million. When PHH protested, Cordray overruled the decision and ordered the fine increased to $109 million, increasing the look-back period from the previous three years to 2008. PHH quickly filed a lawsuit. In its filing, PHH charged the CFPB with demonstrating “brazen disregard for judicial authority.” The suit argued that by placing judicial, executive and legislative powers in the hands of a single individual, the CFPB was the embodiment of what James Madison had defined as tyranny.
The court found that the CFPB had violated PHH’s rights to due process when the agency reversed a long-standing interpretation without notice and then applied its new interpretation to charge PHH with retroactive violations. The ruling relieved PHH of the necessity to pay the fine levied by the CFPB. The court’s opinion stated that the CFPB had violated the bedrock principle that people should receive fair notice of prohibited conduct.
Trump May Take Advantage of Recent Developments to Protect Other Types of Payday Loans
In recent months, more lenders have started offering payday loans online. Critics of the industry charge that they are merely attempting to circumvent state laws or the CFPB’s proposed regulations. However, in many cases, lenders are simply trying to reduce overhead expenses; online payday loans are typically less expensive for lenders than storefront payday loans. The CFPB has repeatedly voiced its disapproval of online payday loans, so it is not surprising that the proposed regulations include these types of loans. It has already targeted several Native American tribes offering payday loans online, essentially denying their claims of sovereignty.
If Trump decides to squelch the proposed regulations, lenders who offer bad credit payday loans as well as those who offer bad credit installment loans, vehicle title loans and other types of small-dollar, short-term loans could benefit. The benefits are not limited to payday lenders; the proposed regulations could force credit unions and community banks to stop making small-dollar loans due to the burdensome underwriting requirements mandated by the CFPB.
Where Do Government Regulations on Payday Loans Appear on President Trump’s List of Priorities?
It is impossible to predict the precise actions that any president-elect will take after inauguration. Many campaign promises have been seemingly forgotten between election day and the swearing-in ceremony. Others have had to be abandoned once the new president discovers that he cannot legally keep his word. According to a May 2016 article in the New York Times, Trump stated that his priorities during his first 100 days in office would be sealing the southern border by increasing the number of agents, encouraging corporations to keep jobs in the country by imposing a tariff of 35 percent on their products, designing the wall for the Mexican border, repealing Obamacare, interviewing candidates to fill the vacant seat on the Supreme Court and addressing the immigration issue.
Although reining in the CFPB does not appear on Trump’s list of top priorities for his first three months in office, most analysts expect that the agency will receive his attention in short order. He may want to foster legislative support to repeal Dodd-Frank before issuing any direct challenges to the CFPB. However, he could also be planning to use his executive powers to hamstring the CFPB as much as possible before seeking congressional assistance. After all, Trump has been extremely difficult to predict throughout his campaign.
Issues such as bad credit payday loans, the Dodd-Frank and the proposed CFPB regulations are complex. If you would like to explore any of these topics in greater detail, visit Personal Money Store and review our extensive collection of helpful articles.