Interim fixes to rein in the CFPB

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Republican lawmakers and Trump administration officials have made clear their opposition to the Consumer Financial Protection Bureau. Yet beating back CFPB policies might be a longer and more difficult fight than many in the industry would like.

Opponents of the bureau have put on the table removing CFPB Director Richard Cordray as well as legislative reform of the bureau among the steps to overturn the agency’s policies. But CFPB hawks in Congress have pledged to block such attempts.

Therefore, backers of regulatory reform should consider what other administrative steps, which would have more of a pinprick effect but still be beneficial, could be utilized in challenging CFPB rules. Here, the other regulatory agencies could come into play.

This was evident when President Trump’s executive order outlining “core principles” for regulation gave a role to the Financial Stability Oversight Council in identifying rules targeted for possible reform. The order did not give the FSOC total control of the regulatory review – perhaps because the council is made up of Democratic-appointed agency heads – but instead requires the Treasury secretary to report recommendations directly while consulting with FSOC members.

Yet the FSOC could have a more substantial role once the Trump administration can appoint new heads of the prudential regulators. Existing law already gives those agencies and other government bodies significant authority to monitor and challenge CFPB rules. Here are some administrative steps – which the Treasury Department should incorporate in a deregulatory plan – that the prudential regulators and other departments could use to slow down the CFPB’s regulatory zeal and further Trump’s deregulatory agenda.

Interagency MOUs

The Federal Trade Commission, bank regulatory agencies and the Department of Justice all have signed memoranda of understanding with the CFPB to require agency notification and coordination on investigations and enforcement activities. For example, in certain instances the FTC must be provided with 60 days’ notice before the CFPB can commence certain types of actions.

If Treasury finds that the CFPB is engaged in investigations, enforcement activity or rulemakings that are problematic, Treasury should encourage the other agencies, particularly the FTC and DOJ, to insist on a strict adherence to these notification and coordination requirements. While this will not stop a determined CFPB, it could slow the CFPB down, and could force the CFPB to take some of the Trump deregulatory agenda into account in order to short-circuit these roadblocks.

FSOC review process

Under the Dodd-Frank Act, the FSOC also has the authority to set aside CFPB financial regulations "if those rules would threaten financial stability."

Any FSOC member objecting to a CFPB regulation can petition the FSOC to overturn it, although a supermajority of the council is required to stop a CFPB rule.

While, as discussed above, it is unlikely that a requisite number of FSOC agencies would vote to overturn a CFPB regulation, an individual FSOC agency has the ability to require the bureau to work in good faith with the agency, which could slow the CFPB’s rulemaking process down. While this process may not be applicable to all CFPB rules, there are likely to be some, such as the CFPB’s pending arbitration rule, that could have widespread effects on the safety and soundness of the banking system.

UDAAP coordination

When the CFPB uses its authority to identify and prevent unfair, deceptive, and abusive acts or practices in rulemaking, under Dodd-Frank Act the CFPB is required to consult with federal banking agencies to ensure that the rules are in line with “prudential, market, or systemic objectives administered by such agencies.” The federal banking regulators could aggressively utilize this requirement to force the CFPB to respond to a deregulatory agenda.

Coordination over administering federal consumer financial laws

While prudential regulators cannot stop or override a CFPB rule, prudential regulators are permitted to formally object to proposed CFPB rules, and the written objections and the CFPB's response must be included in the rulemaking record. A failure to address these concerns could weaken the rule, making it susceptible to a litigation challenge.

In implementing President Trump’s “core principles” of financial regulation, the Treasury Department should consider implementing procedural changes within various federal agencies to help ensure that the president’s deregulatory agenda is not just identified, but is implemented as quickly as possible.

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