Stripping Back Dodd-Frank and the CFPB: Will Banks Leave Consumers in the Rain Again?

“The historical resentment of lenders is best captured in the popular saying that ‘a banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.’”[1] In 2008, a candidate of The John Marshall Law Review quoted these words in his published student comment. Resentment towards the finance industry and consumers’ frustration began to decrease shortly after in 2010, when Congress passed the Dodd-Frank Act.[2] President Obama and Congress, in an attempt to “rein in the abuse and excess that nearly brought down [the] financial system,” hoped that increased regulation on banks would not only protect consumers but facilitate trust between banks and the clients they serve.[3] Now in 2017, President Trump and his Treasury Secretary vow to strip back part of the Dodd-Frank Act, leading consumers to wonder whether they are about to feel the rain again.[4]

Recently, The House of Representatives voted to replace the Dodd-Frank Act with the Financial CHOICE Act.[5] The new legislation would replace several sections in Dodd-Frank. One of the biggest change includes stripping back CFPB’s regulatory authority.[6] The Treasury department plans to limit “undue restrictions” on banks by, restructuring the CFPB as “an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB’s interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.”[7]  The Treasury Department is adamant that these changes will begin to provide clarity to the CFPB’s ambiguous regulations, which in effect will create a well-established precedent for banks to adhere too.[8]

These recommendations come after the U.S. Court of Appeals for the District of Columbia held the CFPB operational structure is unconstitutional and the Director of CFPB cannot only be fired for cause.[9]  The Court explained “a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty than does a multi-member independent agency.”[10] Now, under the ruling, President Trump has the power to fire the CFPB director, like all other at-will government employees,[11] and  provide oversight he deems it necessary.[12]

So what does this mean for the average consumer? The Treasury Department hopes that limiting CFPB’s regulation will restrict the CFPB’s authority in overseeing the commodities and swaps markets and reduce regulatory overlap in the commercial lending world which in effect will increase banks’ lending capacity, and overall market liquidity.[13] Critics of the financial reform “believe there should be more-not less-regulation of Wall Street. They’re worried about regulators being too weak and being too afraid to take on the big guys. Not about their being tough.”[14]

[1] Dustin Fisher, Selling the Payments: Predatory Lending Goes Primetime, 41 J. Marshall L. Rev. 587, 587(2008) (citing Mark Twain Quotes, http://en.thinkexist.com/quotation/a_banker_is_a_fellow_who_lends_you_his_umbrella/179029.html) [sic] (Fisher’s source for the quote is no longer accessible, and there is some doubt overe whether that quote may have been misattributed to Twain, http://quoteinvestigator.com/2011/04/07/banker-umbrella/).

[2] In Every Issue: Legislative Highlights, 36-1 ABIJ. 8 *1 (Jan. 2017).

[3] Craig Enochs, Peter Y. Malyshev, Paul Turner, & Michael Yuffee, Insider Trading: The CFTC Aggressively Pursues Its New Enforcement Authority Under the Dodd-Frank Act, 29 J. Tax’n F. Inst. 21, *1(quoting Remarks by the President at Signing of Dodd-Frank Wall Street Reform and Consumer Protection Act (July 21, 2010), https://obamawhitehouse.archives.gov/the-press-office/remarks-president-signing-dodd-frank-wall-street-reform-and-consumer-protection-act).

[4] Dodd-Frank Wall Street Reform and Consumer Protection Act, Investopedia, (2017), www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp.

[5] Id.

[6] In Every Issue, supra note 2.

[7] Steven T. Mnuchin & Craig S. Phillips, A Financial System That Creates Economic Opportunities, Banks and Credit Unions, U.S. Department of the Treasury, 1, 13-14 (2017), www.treasury.gov/press-center/press-releases/Documents/A%20Financial%20System.pdf. (last visited July 21, 2017) (emphasis added).

[8] Id. at 81.

[9] In Every Issue, supra note 2.

[10] Mnuchin & Phillips, supra note 7 at 81 (quoting PHH Corp. v. Consumer Financial Protection Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016), reh’g en banc granted, order vacated (Feb. 16, 2017)).

[11] In Every Issue, supra note 2.

[12] Id.

[13] Mnuchin & Phillips, supra note 7 at 13-14. See Enochs ET AL., supra note 3 at *1 (explaining how the regulatory change will affect the commodities and swaps market).

[14] Geoff Bennett, House Passes Bill Amid at Reversing Dodd-Frank Financial Regulations, NPR, (June 8, 2017), www.npr.org/2017/06/08/532036374/house-passes-bill-aimed-at-reversing-dodd-frank-financial-regulations (quoting Lisa Donner, executive director of Americans for Financial Reform).