Make Banks Great Again? G.O.P. Push to Ax Key Agency Poses Risks

  • Republicans face disagreement over how far changes should go
  • Banks may resist CFPB overhaul after costly compliance efforts

Richard Cordray.

Photographer: Alex Wong/Getty Images

Donald Trump and Republican lawmakers have made no secret of their desire to remove shackles put on banks by the Dodd-Frank Act, and taking an ax to the Consumer Financial Protection Bureau is one of their top priorities.

But transforming stump speeches that vilified Elizabeth Warren’s favorite regulator into actual change is easier said than done for a variety of reasons. They include disagreements among Republicans about how far to go and opposition to blowing up the CFPB from an unlikely source: bankers.

Trump’s transition advisers already are evaluating ways to legally fire CFPB Director Richard Cordray, according to people familiar with the matter. If they move forward with such a plan, many Republicans want Trump to replace him with someone committed to dismantling the agency. In Congress, another aggressive tactic being considered is forcing through an overhaul of CFPB funding so lawmakers can starve it of money.

Such scorched-earth strategies pose risks. Some Republican congressional aides and bank lobbyists privately say a hard-line approach on the CFPB will alienate Democrats, jeopardizing any chance of persuading moderates to compromise on a broader overhaul of the Dodd-Frank Act. To make big changes, Trump will probably need the support of at least eight Senate Democrats to overcome procedural hurdles that can be used to block legislation.

‘Bigger Fight’

“There are all sorts of risks,” said Iain Murray, vice president of strategy at Competitive Enterprise Institute, a public policy group that advocates for limited government. “If a change in the CFPB director comes to symbolize the bigger fight over Dodd-Frank, there are going to be trade-offs.”

Divisions over the CFPB are one example of a theme that’s expected to play out repeatedly next year on policies ranging from taxes to health care: With Republicans in control of Congress and the White House, they’ll have to resolve long-simmering disputes within their own party to get things done.

Some lawmakers, such as House Financial Services Committee Chairman Jeb Hensarling, have proposed an aggressive replacement of Dodd-Frank, including a major shake-up of the CFPB. Others, including incoming Senate Banking Committee Chairman Mike Crapo, have indicated they’d rather seek modest, bipartisan deals.

‘Unaccountable Bureaucracy’

“The CFPB is an unaccountable bureaucracy rife with racial discrimination that churns out regulations that harm consumers, especially those with low and moderate incomes,” Jeff Emerson, a spokesman for Hensarling said in an e-mail. “Effective consumer protection requires providing Americans with the information they need to make informed decisions, policing markets for fraud and deception, and promoting competition and choice among financial products and services.”

A spokesman for Crapo declined to comment.

Financial companies, which have grown accustomed to parts of Dodd-Frank after spending years and billions of dollars complying with the law, mostly support a measured approach. Instead of destroying the CFPB, they’d prefer Congress alter its structure to reduce the power of the agency’s director, lobbyists said in interviews. The industry also wants to see specific rules scrapped, like one that would make it far easier for consumers to sue banks.

Either way, Republicans and banks are in for a battle. Warren, the Massachusetts senator who helped bring the CFPB into existence, has vowed to fight any changes to the regulator, and she’s recruiting Democratic colleagues to take a similar stand. For now, New York’s Chuck Schumer, the incoming Senate minority leader, is siding with Warren.

Democrats created the CFPB after the 2008 financial crisis to protect people from abuses tied to mortgage lending, credit cards and other products. Warren and agency officials tout that it has recovered $11.7 billion for consumers since opening its doors in 2011.

Run Amok

Republicans have repeatedly painted the CFPB as a regulator run amok, arguing that it curtails lending by burdening banks with red tape. The attacks have run to the mundane, including when Hensarling grilled Cordray at a 2014 congressional hearing over plans to spend money on a granite waterfall at the CFPB’s Washington headquarters.

Trump could set a new tone right away by ousting Cordray. While the Democrat’s term doesn’t end until 2018, he could be removed sooner if Trump’s legal advisers can show cause, such as proving he was negligent in carrying out his duties or has run the agency inefficiently. In addition, Trump might be empowered to fire Cordray at any time for any reason if the CFPB loses an appeal of an October court ruling that found the agency’s structure to be unconstitutional.

“Mr. Trump is looking at all of his options when it comes to changing the leadership,” said John Allison, the former BB&T Corp. chief executive officer who met with the president-elect last month to discuss banking regulations. “He thinks the CFPB symbolizes the worst part of Dodd-Frank.”

Spokesman for Trump’s transition team didn’t respond to an e-mail requesting comment. A spokesman at the CFPB declined to comment.

Leading Candidates

Several names of candidates who could replace Cordray have been discussed in talks between Trump’s advisers and those they’ve consulted, said the people, who requested anonymity because the discussions were private. They include Representative Randy Neugebauer, a Texas Republican who is retiring from Congress this month. Todd Zywicki, a scholar at George Mason’s University’s Mercatus Center, has also been suggested for a leadership role at the agency, people have said. Both have been critical of the CFPB.

“I don’t speculate on opportunities that have not presented themselves,” Neugebauer said in an e-mailed statement. “I have been very pleased with the president-elect’s personnel selections so far, and feel confident that when the time comes he will make choices that best ensure the American consumer is both protected and has access to affordable credit and financial product choices.” 

Procedural Tactics

On CFPB funding, some Republicans want to try to use procedural tactics to circumvent Democrats and make the regulator’s budget subject to congressional approval.

Lawmakers including Senator Pat Toomey, a Pennsylvania Republican, have suggested that could be done by attaching a measure to a fast-track budget reconciliation bill that Democrats would be powerless to block. Right now, the CFPB essentially sets its own budget, estimated to be $606 million in 2016, through funding from the Federal Reserve.

“It would be a mistake to use the reconciliation process,” Senator-elect Chris Van Hollen, a Maryland Democrat who is joining the Senate Banking Committee, said in an interview. “That would get us off to a bad start in terms of an effort to work on a bipartisan basis.”

Banks would like Congress to replace the CFPB’s single director with a five-person commission of political appointees that approve rules and company sanctions. Such a change would make the agency’s structure similar to that of the Securities and Exchange Commission, providing a check on the director no matter which party controls the White House.

Wells Fargo

One reason banks aren’t advocating for the consumer bureau to be eviscerated: they don’t want to be tarred as anti-consumer, especially after the agency led other regulators in fining Wells Fargo & Co. $185 million in September to settle claims that bank employees opened accounts without customers’ approval.

In the meantime, CFPB officials are bracing for an uncertain future.

Trump has tapped C.J. Jordan, a public relations executive and Republican political consultant, to the CFPB landing team, and she has begun meeting with agency staff to discuss the transition.

Paul Atkins, a former SEC commissioner who voted against several rules and corporate fines during his tenure at the securities regulator, is also examining the CFPB for Trump. Atkins has repeatedly criticized Dodd-Frank at congressional hearings in recent years.

“Morale is just really bad at the agency, people are crying,” said Deepak Gupta, a lawyer and consumer advocate who previously worked at the CFPB. “All of their work to build this agency as a force to help consumers could be undone just like that.”

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