Capital Corner: New Sheriff in Town at CFPB? Bet On It.

Over the last few years, no federal regulator, not even NCUA, has been the topic of conversation among credit union leaders more than the Consumer Financial Protection Bureau (CFPB). Now that President Trump is likely to replace Biden appointed regulators at virtually every financial regulator, including NCUA, CFPB, and FHFA (which regulates Fannie, Freddie, and the FHLB System), talk has turned to what’s next at that controversial consumer-focused agency.

First, a reality check. Despite what Elon Musk has said about total elimination of CFPB, I don’t believe that is likely. Neither do a variety of Congressional Republicans, all critics of CFPB, who say that procedurally CFPB would have to clear a 60-vote threshold in the Senate, a virtual mathematical impossibility given that most if not all the 47 Senate Democrats would be opposed.

What might be possible is a two-pronged effort to reform CFPB. First, a change of Director is going to happen. Regardless of what anyone thinks of current Director Rohit Chopra and his policies, he has been a very partisan, very ideological leader of the agency. He’s also one who does not even come close to what a Trump Administration would want out of one of its financial regulators. During the last Trump Administration, there were two CFPB heads, Mick Mulvaney and Kathy Kraninger, both of whom approached the Bureau’s work with a distinctly lighter touch.

Expect whoever President Trump chooses to lead the Bureau to do a few obvious things: stop the promulgation of new rules, rollback Chopra’s regulations (overdraft protection, credit card late fee limits, and “open banking” come to mind), and possibly turn enforcement activities back to NCUA and bank regulators where they resided prior to CFPB’s creation in 2010.

Second, and of more long-term significance, would be a change in the law that turns CFPB into a bipartisan, five-member commission. At the same time, Congress would likely subject CFPB to the regular congressional Appropriation process.

By its very nature, a commission would create a more balanced regulator that incorporates a variety of philosophical viewpoints. A commission-led CFPB, while probably still a partisan flashpoint no matter who is in charge, would at least have the patina of broader support across the political spectrum.

As to the Appropriations, CFPB’s architect Elizabeth Warren (prior to her Senate career) structured CFPB to be insulated from the oversight that comes with congressional purse strings. That was a deliberate attempt to prevent Congress from impeding CFPB’s work but has unfortunately added to a perception that CFPB is unaccountable. That should be reversed, and according to Congressional Republicans, their new majorities appear willing and able to make these two statutory changes a reality in the 119th Congress.

A number of Hill financial services aides have observed that the real problem with the CFPB is that it is a politicized agency with broad policy swings, based on which party controls the White House. One senior House Republican staffer went so far as to say that “CFPB has been run more like a state attorney general’s office rather than like a financial services regulator. It considers itself a supervisor and cop, looking for abuses. And that has led to nothing but controversy.”

Credit unions and other financial service providers need less drama, and more steady certainty from CFPB in the future. And I’m betting they will get it.