As a result of Donald J. Trump’s election as President, coupled with the Democrats’ failure to wrest control of the House or Senate from the Republicans, the CFPB can be expected to undergo significant changes that are likely to have the effect of reducing the agency’s impact.
The most visible expected change is Mr. Trump’s replacement of Director Richard Cordray. How soon that occurs post-inauguration may depend on whether the CFPB seeks further judicial review of the D.C. Circuit’s decision in CFPB v. PHH Corporation and, if so, the outcome of such review. In its decision, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure was unconstitutional. To remedy the constitutional defect, the court severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President can now “remove the Director at will at any time.” Unless and until the PHH decision takes effect (or Congress amends the Dodd-Frank Act), Mr. Trump could only remove Director Cordray “for cause” before the Director’s term ends in 2018.
Once appointed by Mr. Trump, a new Director can be expected to take aim at the CFPB’s “rulemaking by enforcement” approach that has been the target of Republican criticism by decreasing CFPB enforcement activity while using CFPB rulemaking as a way to limit the CFPB’s exercise of its enforcement authority. For example, a new Director might seek the CFPB’s adoption of a rule to define the practices that are considered “abusive” for purposes of the CFPB’s authority to prohibit unfair, deceptive, or abusive acts or practices. A new Director’s efforts to promote rulemaking over enforcement might also include seeking the repeal of the CFPB’s auto finance fair lending guidance. (One of the criticisms leveled at the guidance is that it should not have been adopted outside the rulemaking process.)
In addition, if the CFPB’s proposed payday lending and arbitration rules have not been finalized when a new Director is appointed, a new Director might seek to withdraw or amend the proposals. Also, since the CFPB has not yet issued a proposed debt collection rule but has issued only an advance notice of proposed rulemaking, it is possible a proposed rule, if any, will not be issued until a new Director is in place and therefore might be more industry-friendly. (These potential scenarios could also motivate Director Cordray to accelerate the three rulemakings.)
The election results also substantially increase the likelihood that Congress will enact some of the reforms to the CFPB’s structure, funding, and operation that have been the subject of numerous bills introduced by Republicans over the approximately five years the CFPB has been operational. Such bills include “The Financial CHOICE Act of 2016,” the Dodd-Frank Act replacement bill that was approved this past September by the House Financial Services Committee. Most notably, the CHOICE Act, like previous Republican bills, would replace the CFPB’s current single director with a bipartisan, five-member commission and fund the agency through the appropriations process rather than through transfers from the Federal Reserve. The effects of these changes are likely to include a longer timeline for CFPB rulemaking, a less partisan-driven CFPB agenda, and greater Congressional influence on CFPB decision-making.
