On Wednesday morning, a federal appeals court in Washington upheld the structure of the Consumer Financial Protection bureau, ruling that the head of the agency can only be fired by the president for cause. This should ensure that the agency head can act without fear of political repercussions or worry that the White House won’t be happy with its regulations.
Count this as a major victory for former CFPB head Richard Cordray, and the Obama administration, who, when faced with this lawsuit, fought hard for the agency’s independence.
Yet there’s an irony to this victory. Under President Trump, the destruction of the CFPB as a champion for consumer rights over corporate predations is well underway, and will continue regardless of the ruling. If this ruling stands (it may be appealed all the way to the Supreme Court), all it may do in the short-to-medium run is ensure that a Trump appointee can remain in office past 2020, even if a Democrat wins the presidential election. This means the undermining of the agency might continue for quite some time to come.
The case itself was brought by mortgage company PHH Corp, as a response to a $109 million fine levied on it by the CFPB in 2015. PHH claimed that the way the CFPB was set up by the Dodd-Frank financial reform legislation was unconstitutional, since it left the head of the agency unaccountable to the president.
When Congress established the CFPB with passage of Dodd-Frank, it protected the head of the agency — who is appointed by the president, subject to approval by Congress — by saying he or she could not be fired without cause over his or her term. The law was written this way to ensure the director of the agency felt free to take actions without needing to take political headwinds or presidential whims into account.
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But now, under Trump, the head of the agency has been appointed by a president who is actively hostile to the stated mission of the CFPB. The lawsuit, while a nice victory for the long-term independence of the bureau, won’t do anything to make things better for consumers in the here and now.
After Cordray resigned last November, Trump installed White House budget head Mick Mulvaney as temporary CFPB chief pending a more permanent appointment. The moonlighting Mulvaney, who to the agency as a “sick, sad” joke, immediately set about leaving no stone unturned in his effort to make the business world safe from rulings by the CFPB.
Mulvaney quickly got started by adding language to the CFPB’s mission statement to emphasize how business friendly it now is. Mulvaney then followed up this month by circulating a memo at the CFPB announcing the agency would not “push the envelop” in regulating the businesses under its authority.
Mulvaney has been particularly solicitous of the payday-loan industry a predatory business if there ever was one, where, minus serious regulation, outfits can charge desperate consumers several hundred percent in interest annually in return for the privilege of receiving a short-term loan. This sector gave his campaign fundraising apparatus a little less than $32,000 in the 2015-2016 campaign cycle.
One of those donors was a South Carolina based payday-loan outfit, World Acceptance Corporation, which was under investigation by the CFPB under Cordray. But not under Mulvaney! The CFPB recently ended its look at the company with no disciplinary action taken. As many have noted, World Acceptance made $4.500 in donations to Mulvaney’s campaign coffers in recent years.
The CFPB also recently dropped a lawsuit it filed against several payday-loan lenders that operated out of a Kansas-based call center, but were registered as businesses on Native American reservations. The lawsuit claimed the companies misled consumers signing up for their services, leaving them unaware the interest rate on the money they borrowed could cost as much as 950 percent annually.
Finally, Mulvaney placed at least a temporary stop on a regulation that would have put more significant regulation on the industry. Many suspect he will ultimately rewrite the rules to make them more favorable to the payday-loan business.
All of this comes on top of Congress last fall overturning a CFPB rule banning financial services companies from forbidding consumers of their services the right to join a class action lawsuit in the event of a dispute. Trump, needles to say, signed the repeal.
There’s little left to say. Yes, Mulvaney’s appointment is temporary, but it’s hard to believe Trump will appoint anyone friendlier to consumers when he gets around to filling the post. That person, will, in turn, have five years — the term granted by Dodd-Frank — to not do much, if anything, to help consumers. And so, while this ruling (presuming it is not overturned) is a victory for the long-term independence of the bureau, it may end up meaning that Trump’s appointee holds over into a Democratic administration, and will continue to do very little to help consumers.