The consumer watchdog agency borne out of the financial crisis turns five this week, but the financial industry and Republicans are hardly celebrating. Indeed, the Republican Party platform adopted in Cleveland this week describes the Consumer Financial Protection Bureau as a "rogue" agency that should be abolished or at least overhauled.
Say this for the CFPB. In its short history, it has earned its enemies, going aggressively after financial institutions for practices it deems harmful. The agency's sweeping regulatory authority has allowed it to crack down not only on banks and credit unions, but also on payday lenders, debt collectors, for-profit colleges and even telecom giants.
Already, the CFPB has provided a whopping $11.7 billion in relief for more than 27 million consumers across the country and ordered companies to cough up another half billion in penalties. And it's just getting rolling--assuming, that is, the Democrats keep the White House.
The bureau was, of course, the brainchild of progressive darling Elizabeth Warren, then a Harvard Law professor and now a U.S. Senator representing Massachusetts. Her idea was to consolidate a bunch of different regulatory powers under one agency with the stated goal of protecting the average American consumer. The CFPB was created by Congress in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and officially opened its doors on July 21, 2011. President Obama passed Warren over for the top job and instead appointed Richard Cordray, the former attorney general of Ohio and a previous champion on Jeopardy, to head up the operation. Two years later he was confirmed by Congress.
For a government agency, especially a new one, the CFPB has ruled swiftly and (critics say) harshly. It has taken dozens of enforcement actions, suing companies in federal court or bringing administrative actions over alleged illegal activity.
"A lot of people, including myself, believe that the CFPB's overriding philosophy has been to regulate through enforcement rather than actually issuing regulations," says Alan Kaplinsky, an attorney at Ballard Spahr who works on behalf of the financial institutions.
At the top of the CFPB's hit list is mortgage servicer Ocwen, which had to pay $2 billion in principal reduction to underwater borrowers for what was described as misconduct "at every stage of the process." Banks have also been among the bureau's prime targets. Thanks to the CFPB, in 2014,
Financial institutions outside the mainstream have been caught in the CFPB's dragnet, too. For instance, ACE Cash Express, one of the largest payday lenders in the U.S., was ordered to pay $10 million for illegal debt collection practices. The incriminating evidence included an ACE employee training manual with a visual depiction of someone caught in a cycle of debt -- and advice for how to push the borrower further in the red.
The bureau has also finalized landmark mortgage regulations that require lenders to determine a borrower's ability to repay and is working on rules that deal with arbitration, debt collection, overdraft fees and prepaid debit cards.
Consumer advocates are quick to applaud the work done by the bureau and say its efforts were long overdue. "The CFPB has made enormous strides in ensuring that the financial marketplace is fair to consumers," wrote the Americans for Financial Reform in a recent letter to Congress that defended the bureau.
Many consumers have embraced the CFPB as a financial ally, too; so far, the public has submitted nearly one million complaints about practices related to credit cards, bank accounts and other products. Significantly, the CFPB makes these unflattering tales public and companies are legally required to provide a timely response. "There didn't use to be much people could do, but this has become an important tool," says Mike Calhoun, president of the Center for Responsible Lending.
CFPB critics, including many Republicans who want to repeal or significantly weaken Dodd-Frank, argue the agency wields far too much power and with too little oversight. They point out that its workforce has swelled to 1,500 people and it is run by a single individual who can only be fired by the President for cause. Even more galling to Congressional critics is that under the Dodd-Frank law, the CFPB gets its funding from the Federal Reserve, not Congress. That means the politicians can't cut its budget as punishment, as they've done to the Internal Revenue Service.
The CFPB's structure is currently being challenged in court by mortgage lender PHH Corp, which is contesting a decision that found it took kickbacks. In court filings, the lender argues that “the CFPB places legislative, executive and judicial power all ‘in the same hands’ of a single person—what James Madison called ‘the very definition of tyranny.’"
Opponents also say the CFPB's actions have the effect of limiting access to financial services and treating Americans as if they're incapable of making good financial decisions. For instance, proposed rules on payday loans would restrict when and how often people can take these loans out.
Industry groups complain that the law as written gives the CFPB too much discretion. Not only illegal activities, but practices the bureau deems "unfair, deceptive or abusive" can get them into trouble, which hampers innovation, they say.
"These terms are very vague and as a result everyone is more cautious," says Kaplinsky. "The question I get asked now is not whether our new product complies with applicable laws, but how is the CFPB going to react to what we're doing."
But as even Kaplinsky acknowledges, it's not necessarily a bad thing for companies to slow down and consider whether something will raise regulatory eyebrows. As Cordray put it in a recent podcast, the right kind of financial services developments "are likely to be of the kind consumers are looking for: more affordable, accessible, convenient and responsible."
Look for the CFPB to be overhauled if voters elect a Republican president and Congress in November. In the meantime, the attacks will continue. Even proponents of the CFPB can't talk about its progress without a disclaimer. As Calhoun puts it: “I give it high marks overall, especially considering it has stood up as a brand new agency where many people are looking to magnify its trip-ups and mistakes."
