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In the first of a two-part report, Vixio looks at what the impact of a second term for President Donald Trump will be on the Consumer Financial Protection Bureau (CFPB), the US federal consumer protection agency.
It may not be the top of the agenda for either camp, or probably even close, but there are serious implications for the US payments sector from whoever heads to the White House after Tuesday, November 5.
With the US election imminent, the debate is raging about the candidate’s approach to globally and domestically significant issues, such as the wars in Gaza and Ukraine, US immigration, the economy and female reproductive rights.
Polarisation in the United States has left the campaign on a knife edge, and although Donald Trump is currently favoured by bookmakers, it would take a brave gambler to predict the result either way.
One of the key differences between a Trump administration and one led by incumbent Vice President Kamala Harris is the future of the CFPB.
The brainchild of Massachusetts Senator and former presidential candidate Elizabeth Warren, the CFPB was formed in the wake of the 2008 financial crisis to help protect US consumers from the sort of invasive financial practices that had led to the collapse of the US economy, such as hidden credit card fees or aggressive mortgage practices from banks, lenders and other institutions.
Since inception, the agency claims to have responded to more than 4m consumer complaints and lobbied for more than $20bn in financial relief, but has been riddled with political controversy.
The bureau was formed as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and Republicans tend to argue that the agency is overzealous and imposes a politically motivated agenda, calling into question its independence and authority, suggesting that it wields too much power.
Operating without limitations on its congressional funding and giving its leader “for-cause” protection were an overstepping, it has been widely suggested.
The Republican stacked Supreme Court struck down the protection on the CFPB’s leader in 2020, allowing the President to remove the director at will, and this could have consequences down the line.
During the previous Trump administration, the bureau faced an existential crisis. Driven by distaste for the entire concept of the agency and the overarching deregulatory agenda seen across the four years, Trump replaced the inaugural director Richard Cordray with former Republican House representative for South Carolina Mick Mulvaney, and later with Kathy Kraninger, who was met with much critique from Democrats who lamented her lack of direct experience.
At the time, a source likened Kraninger’s appointment to putting a fox in charge of a hen house.
The move was indicative of the administration’s disregard for the bureau.
Keith Noreika, chair of the banking supervision and regulation group at Patomak, told Vixio that the leadership of Rohit Chopra has been just as political as predecessors; however, in a role that was intended to be apolitical.
“Since this administration took office the director has often been at the White House with the President, for example talking about junk fees,” suggested the former director at the Federal Deposit Insurance Corporation (FDIC) and member of Trump’s first transition team.
“We are obviously also seeing a coordination in timing in amping up both enforcement actions. A politically neutral leadership doesn’t exist in the current administration, so it probably wouldn’t last in a new administration.”
Noreika added that Trump’s first four years did not show an entirely pro-business agenda, as could be seen by CFPB action against Wells Fargo in 2018. Critics have suggested that this fine simply was an exception that proved the rule regarding Mulvaney and his anti-regulatory agenda, and called the decision out for its soft handling of the Wells Fargo executive board.
Although the victory of Joe Biden led to the appointment of Rohit Chopra who has arguably upheld operations closer to the original mandate of the agency, with the election poised in the balance there are concerns that it may once again be under stress.
Currently, there is not much that can legally be changed beyond changing the director. According to one government relations specialist at a US banking association, however, although the administration has limited control of the agency, appointing another director that “does not uphold the values of consumer protection” could be a “game changer”.
A revamped funding structure
The Trump administration could also potentially look to change the funding structure of the agency to limit its abilities.
Given that the Supreme Court already removed protection over the directorship, it would not be too unlikely that they would change the funding structure as well, although the court did rule that the funding structure is constitutional this May.
Deborah Baxley, a partner at PayGility advisors and a representative member of the steering committee at the US Payments Forum, added that if the Republican party not only wins the presidency but gains control of both chambers of Congress, the momentum to dismantle the CFPB could grow over the four-year administration.
“They would probably try and get rid of it, or neuter it. They put a guy in charge last time who thought it was a terrible idea and he tried to dismantle it little by little,” she said. “It would be a good strategy to just do that again.”
This approach could reduce the agency to an empty shell of its former self, even if it continued in name alone.
Court attacks
Judicial shifts could also potentially cause trouble for the CFPB. The Supreme Court has already been stacked by Trump, and further judicial appointments could also affect the agency.
There have been recent decisions that have undermined the CFPBs mandate, and further Republican influence in the system could add to that.
The key case to note in this instance is Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which in 1984 a Supreme Court decision was made that gave rise to the Chevron Doctrine. The doctrine ensured that courts were forced to uphold a federal agency’s interpretation of a statute as long as it was reasonable in an instance where Congress has not directly addressed the issue. This ruling essentially gave federal regulators their authority.
Earlier this year, the Supreme Court overturned that decade-old ruling, suggesting it was misguided, and essentially moved power of legal interpretation to the courts and away from regulators. This has ramifications for the CFPB, which has been aggressively enforcing rules over the past four years in ways that are perhaps not as initially defined.
The CFPB ruling that suggests buy now, pay later (BNPL) accounts are actually credit cards is an example of this and could well be overturned in a court if challenged under a new regime.
“The courts have seen a lot more challenges to the CFPB authority, which haven’t been totally successful during the Biden administration,” said Caleb Logan, a California-based attorney focused on fraud and financial elder abuse. “But if we were to have those legal challenges continue and actually aided by a Trump administration, especially if he appoints more lower court judges, I don’t see consumer protection going very well.”
The Chevron decision and a Trump administration would open the door wide to greater litigation calling the CFPB’s authority and mandate into question, he added. If the agency is tied up in court and unable to proceed on enforcement actions then it will be severely weakened, especially if the director is not fully supportive of the mandate.
Protecting consumer protection
Without an effective consumer protection agency, everyday Americans could face risks from the financial sector.
While debates exist over the agency’s structure and scope, sources agree on the need for safeguards to protect consumers. Otherwise, responsibility would shift to other regulators, who may prioritise financial institutions over consumer interests.
The mandate of the CFPB is not simply holding companies accountable, but giving consumers confidence that there is help available if something goes wrong. The CFPB has worked for Americans for several years and without it the enforcement landscape would not be as strong.
Some do argue that the bureau would not face that dramatic an attack under a Trump presidency. Noreika told Vixio: “I have a feeling the CFPB is here to stay.”
“Maybe they try to get a hold of the funding mechanism, that they might be able to do, they might be able to structure that in a way that doesn't require sixty votes in the Senate as a deficit reducing action that they could put it into a reconciliation bill,” he said. “But I don't see the Trump administration at this point getting rid of the CFPB.”
He added that if Harris wins the election then the future of the agency will be dependent on who controls Congress, and the court system, regardless of how progressive her administration may prove to be.
