Earlier this week, House Financial Services Committee Chairman Jeb Hensarling circulated a memorandum to committee leaders outlining potential upcoming changes to the Financial CHOICE Act that will be introduced during the 115th Congress.
Those proposed changes would affect several significant aspects of the Dodd-Frank Act, such as providing regulatory relief for strongly capitalized banks, taking steps to end “too big to fail,” and drastically reducing the CFPB’s authority.
Hensarling’s memo suggests that the latest version of the Financial CHOICE Act could contain a number of proposed changes to the CFPB that are significantly different from the bill that Hensarling introduced during 2016.
A key feature of Hensarling’s original version of the Financial CHOICE Act involved replacing the CFPB’s single director leadership structure with a bi-partisan, five-member commission. It now looks like Hensarling has abandoned his bid to install a multi-member commission. According to the memo, it appears that Hensarling may instead leave the Bureau’s “sole director” structure intact but make the Director subject to the president’s management and supervision and “removable by the President at-will.”
Obviously, the political landscape has changed significantly since the Financial CHOICE Act was first introduced in July 2016. At that time, Barack Obama was in office and it appeared likely that he would be succeeded by another Democrat, Hilary Clinton. Most industry experts and observers anticipated that, if elected, Hilary Clinton would appoint a Director with a similar vision as current Director Richard Cordray and that the CFPB’s overall agenda and mission wouldn’t skip a beat. A surprise Trump presidency along with Republican control of both houses of Congress probably inspired Hensarling to take a different approach to reforming the CFPB.
The five-member commission made more sense for Republicans under a Democratic administration. Now, under this proposal, Trump could remove Director Cordray and appoint a Director of his own choice who would likely have more authority to alter the CFPB’s agenda than a multi-member commission could.
Hensarling’s memo also lists various other proposals to overhaul the CFPB. The memo states that the “CFPB is to be retained and restructured as a civil law enforcement agency similar to the Federal Trade Commission.” The memo goes on to suggest the following restrictions on the Bureau’s authority:
- Sole director, removable by the President at-will
- Elimination of consumer education functions
- Rule-making authority limited to enumerated statutes
- UDAP [sic] authority repealed in full
- Supervision repealed
- Consumer complaint database repealed
- Market monitoring authority repealed
- Enforcement powers limited to cease and desist and CID/Subpoena powers
- Mandatory advisory boards repealed
- Research function eliminated
- Strengthen the existing Dodd-Frank language that the CFPB’s jurisdiction does not include entities regulated by either the SEC or CFTC
One of the most striking changes outlined in the memo is the proposed elimination of the CFPB’s UDAAP authority. While the CFPB would retain some enforcement authority, the agency’s preferred enforcement tool would no longer be available. This would eliminate one of the more controversial aspects of the Bureau by forcing the agency to rely upon specific statutes to regulate financial institutions rather than exercising its broad discretion to determine which acts and practices can be characterized as UDAAP violations. This would reduce the Bureau’s ability to establish new regulatory expectations through its enforcement actions, or as critics may say “regulate by enforcement.”
The proposed restrictions on the CFPB’s rulemaking authority would also have a significant impact on rules that are in various stages of development. For instance, neither the payday rule nor the arbitration rule arise from “enumerated statutes.” In other words, the CFPB’s authority to issues each of those rules comes from UDAAP and other Dodd-Frank authority; as such, they would not be permissible under Hensarling’s proposal.
The CFPB would also encounter roadblocks with its debt collection proposals. While the Bureau’s Outline of Proposals is partially grounded in the FDCPA, the Bureau would not be able to issue collection rules that apply to first-party collection without relying upon its UDAAP authority.
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