In just a few days the United States will have a new president and administration. In addition to the presidency, Republicans hold a majority in both the House of Representatives and the Senate. Obviously, the new administration has a significantly different philosophy of governance than the outgoing administration. It may have a profound impact on the financial services industry. Some changes we can be fairly certain of; others are more problematical.
Most important will be the makeup and governance of the Consumer Financial Protection Bureau (CFPB). The United States Supreme Court, in the case PHH v. CFPB, has ruled that the authority that Dodd Frank gave the director of the CFPB is a violation of the separation of powers clause of the Constitution. As constituted, the CFPB has no congressional oversight, no budget constraints, the director does not serve at the pleasure of the President and may be removed only for cause. The Court ruled that at a minimum, the director must be removable by the President at the President’s discretion. For several years, the Republicans in Congress have voiced a preference that the CFPB be governed by a five member board.
In September 2016, the Financial Services Committee of the House of Representatives passed and sent to the full House the Financial Choice Act. That Act, while a long way from becoming law, does provide an insight into the thinking of the Republicans in the Congress. The Financial Choice Act deals with a lot of Dodd Frank issues that do not directly affect financial institution compliance. But as to compliance, it changes the name of the commission to the Consumer Financial Opportunity Commission and makes it an independent agency outside the Federal Reserve to be governed by a five member board. Also, its funding will be by Congressional approval so it will have Congressional oversight. The new commission will have a twofold mission. The first will be the protection of consumers. The second will be the consideration of the financial burden of regulations on the financial services industry. All new regulations will be required to undergo a cost/benefit analysis initially and every five years thereafter.
The Financial Choice Act also contains a smorgasbord of banker’s wish lists of other regulatory changes; some are pretty significant, others not so much. My guess is that the governance changes to the existing CFPB will become law. The other changes are more problematical. The Act should pass the House of Representatives fairly easily, but it will run into strong opposition in the Senate, particularly from Senator Elizabeth Warren who was instrumental in the original set up of the CFPB and its tone and direction.
In any event whatever change is made to the CFPB, it will not happen quickly. There are other issues such as Obamacare, tax reform, rebuilding our infrastructure, and immigration reform that have a higher priority. It will be interesting to watch the actions of the CFPB over the next few months. Its management is certainly smart enough to realize that the handwriting is on the wall and that the commission’s future, as presently constituted, has a short fuse. Will it push through as much as it can while it still has the authority to do so? I don’t know what enforcement actions it has pending, but I would not be surprised to see a significant number of enforcement actions fairly soon. Two targets they have announced are student loan servicers and debt collectors. If you fall within either of those categories, there is a target on your back. I don’t know what new regulations the CFPB can announce, but if there are any they will be pushed quickly.
As Charles Dickens said, it is the best of times and the worst of times. I think that there will be a marked reduction in the burden of regulations on the financial services industry. More important, I hope we all see a strengthening of our economy which will provide a more favorable environment for profitable financial services.