Ben Giumarra

The first major blow has been dealt to the Consumer Financial Protection Bureau, with President Donald Trump putting in place his choice for acting director. Presumably, he will also have his choice of permanent replacement as well. The CFPB director has significant power to affect the agency’s actions. The question is, how much is the agency going to change? And how does this affect the lending industry?

Impact On Rulemaking Efforts

Many of the CFPB’s rulemaking actions are driven by statutory directives, particularly from the Dodd-Frank Act, that the director, nor any other CFPB employee, can directly avoid. For example, the CFPB is required to issue regulations that put in place “HMDA-like” reporting requirements related to credit applications by small businesses and women- and minority-owned businesses. But that doesn’t mean CFPB personnel lack control over the speed in which these actions are taken, or how tough any new rules are on the industry. Of course, the CFPB also undertakes to create and clarify rules in instances not directly required by legislation. These efforts, in particular, would be impacted by a CFPB controlled by the new administration. It is also hard for the CFPB to overturn rules that are already in place.

Key rulemaking efforts to watch include small business data collection (early stages, no proposed rule), clarifications or changes to HMDA (guidance had been expected to arrive this month), payday lending (finalized rule would have to be reopened), debt collection, overdraft programs and prepaid financial products. HMDA is a particularly interesting example. I’m no politician, but people I rely on claim it would be unlikely for the CFPB to delay HMDA’s implementation date now so late in the game, despite industry requests to do so.

So ultimately, apart from a small number of initiatives that aren’t required by legislation and aren’t already too far along, dramatic changes to the CFPB’s direction can’t be accomplished through the rulemaking process. Instead expect gradual adjustments and tweaks through rulemaking efforts, with the new regime having to wait for the opportunity to make more dramatic changes such as significantly rewriting or removing regulations.

Enforcement Activities

I believe there is a greater opportunity to change the CFPB’s direction as to its enforcement activities. The director has great power to approve enforcement action and to affect the penalties when action is taken. Changes to how rules are enforced, the likelihood of enforcement actions, and the severity of actions taken may encourage some organizations to reevaluate resources currently dedicated to compliance programs. But the number of organizations so affected is limited. This includes mostly the largest lending institutions in the country, but also those institutions where a CFPB enforcement action is underway, but not yet finalized.

All but the largest depository institutions will continue to be examined in the same fashion by the same federal regulator, whether that be the FDIC, Federal Reserve, NCUA or other. In some instances depositories will also face enforcement by state agencies, as will independent mortgage lenders, as they do today. There’s no reason to expect changes in CFPB enforcement to change their behavior, at least not quickly. These federal regulators have adopted a great amount of new procedures and practices initiated by the CFPB, but they were adopted as their own, and wouldn’t be affected by a CFPB change. And regarding state enforcement agencies, many predict their enforcement activity to actually be bolstered by the CFPB struggles, in part ideologically but in part practically, as the CFPB has made it more difficult to maintain strong human resources at state agencies.

So for the vast majority of institutions, dramatic changes to CFPB enforcement activities won’t seem to be a huge help. Some would even argue that, for institutions taking compliance obligations seriously, weakened enforcement activity (as directed at the institutions typically targeted by the CFPB) simply allows larger competitors to be more aggressive and get by lesser investments in regulatory compliance.

Finally, we can’t forget that many new regulations can be enforced not only by regulatory agencies, but also by private liability. Even if CFPB enforcement becomes more relaxed, financial institutions shouldn’t expect a similar attitude from a plaintiff’s attorney in a civil action.

Other Considerations

Certainly changes are coming. But there are other reasons to believe it may be harder than expected to change what the CFPB has done.

The CFPB is an agency where every procedure established, every single employee hired, every single action taken, was done pursuant to a unifying vision that a new “sheriff” was needed to protect vulnerable consumers from abusive institutions with too little concern for the retirement accounts and family homes of the American public. Whether you agree that this vision is based in truth, in naivety or out of pure political interests, this remains a uniquely galvanized organization. I wonder how hard it is going to be to alter its direction and culture.

Furthermore, states such as Massachusetts adopted CFPB regulations as state law. This prevents CFPB rulemaking and enforcement changes from having a big impact on financial institutions in this state.

Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@scapartnering.com or (781) 356-2772.