Update 263 – The Dog Catches the Bus:
Mick Mulvaney’s Mysterious Mission at CFPB
This week saw Consumer Financial Protection Bureau (CFPB) Director Mick Mulvaney appear before both the House Financial Services and Senate Banking Committees. After years of working aggressively in Congress to shred the Bureau to pieces, Mulvaney is charged with the operating it; the dog that chased the bus so long now finds himself in the driver’s seat.
The particular spectacle may not be repeated.
Mulvaney’s mission is slated to end soon, as the President may appoint a full time Director this summer to replace him. Former Director Richard Cordray’s term would have ended — and therefore Mulvaney’s time as Acting Director is set to end — on June 22.
What has Mulvaney done, or not done, with, or to, the Bureau? We examine this below.
Good weekends all,
CFPB’s Intended Mission
The Consumer Financial Protection Bureau was created under the Dodd-Frank Act to bring all financial protection regulatory mandates under the roof of a single agency and to provide consumers with a remedy against predatory mortgage brokers, credit card issuers, payday lenders, and other fraudulent financial actors. The Bureau was intended to be funded independent of political considerations and lobbying campaigns.
The CFPB has taken action on behalf of consumers in the aftermath of issues like the Equifax data breach and the Wells Fargo’s fake account scandal. Since the Bureau’s opening in 2011, it has taken enforcement action in cases of unfair, deceptive, and abusive acts and practices, discrimination, illegal mortgage-related compensation, and illegal debt-relief advance fees. It has also returned $12 billion to almost 30 million consumers who suffered losses at the hands of predatory lenders and debt collectors.
Mulvaney’s Contempt for the Mission
• Enforcement: Mulvaney has made it his mission so far to weaken the agency from the inside. Through his first five months he has not opened a single enforcement action and has discontinued four that were started by Richard Cordray. While Mulvaney claims that his predecessor likewise did not issue an enforcement in his first six months, the acting director is unlikely to issue new enforcements going forward like Cordray did. Yesterday, he confirmed that “Regulation by enforcement is done, we’re not doing it anymore.”
• Funding: Mulvaney is working to starve the CFPB of funding. Each quarter, the CFPB requests funding from the Federal Reserve. In January, Mulvaney requested $0 in funding for the CFPB, insisting $177 million in its bank would be sufficient. Fiscal conservatives applauded the move, but most observers were baffled. Without proper funding it is unlikely the Bureau will be able to carry out whatever limited function Mulvaney allows for.
• Payday Lending: Mulvaney has also opened up a re-examination of the final payday lending rule, which was exhaustively commented on and revised during Cordray’s Directorship. Payday loans started borrowers on negative long term debt cycles leading to credit card delinquency, unpaid bills, overdraft payments, and bankruptcy. The payday lending rule requires lenders to consider borrowers’ ability to repay a loan by completing a full-payment test on loans, having a principal payoff-option for certain short-term loans, providing less risky loan options, and limiting the amount of times a borrower can be debited. Mulvaney is expected to weaken the rule and its enforcement. Consumer advocates view CFPB dropping the Golden Valley Lending and three other payday lending cases involving interest rate charges of up to 950 percent as worrisome precedent.
Director Mulvaney has been caught speaking from both sides of his mouth. This week, before the relevant House and then Senate committees, Mulvaney has actively campaigned against his own position as Director and pleaded for slashes to its budget and funding mechanism.
• Funding: Per Dodd-Frank, the CFPB is not subject to the Congressional appropriations process and instead is funded by the Fed. This is not uncommon in the banking regulatory space as it prevents political winds from derailing Wall Street’s watchdogs. Mulvaney claims this is inappropriate and wants to see the Bureau subject to the same funding shenanigans that the IRS suffers under. This would be uniquely dangerous for the CFPB as the acting director himself voted in 2012, 2013, 2014, and 2015 to defund the consumer agency while a member of the House.
• Governance: While Mulvaney pleads for more Congressional interference in the Bureau’s funding mechanisms, he suggests that the Bureau’s governance structure be altered from the single Director model to a Board. He claims that this is to prevent radical shifts in the CFPB’s mission and function as leadership changes while simultaneously arguing that he is not acting with any partisanship as acting director, instead enforcing the letter of the law. Mulvaney also went so far as to advocate for Congressional approval of CFPB rules, which would be a stunning abdication of a federal agency’s rulemaking responsibility. Finally, Mulvaney wants to give the President direct authority over the agency’s director, making the director easier to fire.
• Oversight: Mulvaney also wants more policing of the CFPB, asking Congress for an inspector general’s office to be housed at the agency to monitor the bureau. This increased legal scrutiny is largely unnecessary and would make the bureau function less efficiently.
Small Business Perspective
Recent polling reveals that entrepreneurs and small-business owners support the CFPB’s mission. The small business poll showed 84 percent of entrepreneurs believe the CFPB is needed to prevent predatory practices, ensure fair treatment of small businesses and consumers, and provide fraud protection. Just 29 percent of small-business owners think CFPB funding should be subject to Congressional appropriations.
What Comes Next?
Mulvaney’s hearings came along with reporting that the CFPB is exploring enforcing an unprecedented $1 billion fine against Wells Fargo for auto insurance and mortgage lending abuses. This stems from an investigation started under Richard Cordray. Such a fine would be the Bureau’s first under Mulvaney’s stewardship, and would align with the CFPB’s intended mission. Given Mulvaney’s apparent disdain for the organization he runs, these reports are far from certain.
Key will be CFPB’s decision on the payday lending rule. Given that then-Congressman Mulvaney’s campaigns were largely financed by payday lenders, it is hard to be optimistic that he will effectively curb payday lending abuses in any significant way. It is unknown how long Mulvaney will stay on the job. His time as Acting Director expires on June 22, but he could stay in the role as long as President Trump does not appoint a successor to Richard Cordray. Who the President may ultimately appoint to lead the agency next is anyone’s guess.