PART 1: ESTABLISHING THE CFPB
The establishment of the Consumer Financial Protection Bureau (CFPB) in 2010 meant that traditional installment lenders, among other groups, had to rapidly raise their game in terms of interaction with the federal government. Where installment lenders have traditionally been regulated by individual states, the CFPB added an additional level of federal oversight, requiring enhanced engagement for companies which had little confidence in the ability or desire of the new bureau to treat the financial services industry fairly.
To understand the reasons for this perception, we need to look at the circumstances of the bureau’s founding. The CFPB’s creation was authorized by the Dodd–Frank Wall Street Reform and Consumer Protection Act as a legislative response to the financial crisis of 2007–08 and the subsequent so-called Great Recession. Its mandate was consumer protection in the financial sector and its jurisdiction extended to banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the United States.Critically for installment lenders, the CFPB writes and enforces rules for financial institutions, conducts investigations of both bank and non-bank financial institutions, monitors and reports on markets, as well as collects and tracks consumer complaints.
From the beginning, there were concerns that the bureau would have an activist mindset, particularly in the febrile atmosphere following the recession, and this was all but confirmed by the rhetoric from certain high-profile supporters of the CFPB in Congress. Neither did observers hold out much hope that any activism would be managed through the usual checks and balances a government department must operate under – the CFPB was intentionally designed to be autonomous from congressional oversight and semi-autonomous from the executive branch. Its Director (for most of its existence this was Richard Cordray) was a recess-appointment that, after Senate confirmation, could be in place for a 5-year term that could be extended indefinitely until another director is confirmed (a process dependent on the make-up of the Senate and vulnerable to stalling and obstruction). In a subsequent ruling on the constitutionality of the Dodd-Frank Act a Federal Circuit Court judge called the CFPB’s unelected director “the single most powerful official in the entire U.S. Government, other than the President,” On top of this, the bureau seemed to staff itself exclusively with Democrats as a deliberately policy. None came from a financial services background.
This did not bode well for an even-handed approach to consumer protection.
PART 2 COMING NEXT MONTH