Published October 12, 2012
A government watchdog that gives consumers a voice in the financial industry may find its life cut short this November, depending on who wins the presidential election. The Consumer Financial Protection Bureau, or CFPB, has been in the crosshairs of Republicans since it was created a little more than a year ago, and it could disappear if Mitt Romney, the Republican nominee for president, is elected.
The CFPB was created under the 2010 Dodd-Frank Act to ensure that credit card offers, home mortgages, and other consumer financial products and services are fair to Americans. The bureau educates consumers, enforces federal consumer financial laws and studies the impact of financial products and services on consumers. Its director is appointed by the president and confirmed by the Senate. Its funding comes from Federal Reserve, though it's independent from the central bank.
The bureau has quickly become the industry's policeman, ordering credit card companies to pay hundreds of millions of dollars in consumer refunds and fines. Whether it maintains this status depends entirely on who's in the White House next year.
"If President (Barack) Obama is re-elected, the CFPB will be validated and reinvigorated," says Bill Bartmann, co-founder of debt-collection company CFS II. "If Romney wins and the Republicans keep the House and take the Senate, they likely would neuter the CFPB."
The CFPB's very creation rankled Republicans and bank lobbyists from day one. It took nearly six months for a director to be chosen, and that only occurred after Obama sidestepped Congress and appointed Richard Cordray during its winter recess.
In March, Republicans on the House Financial Services Committee, led by Paul Ryan, budget committee chairman and current GOP vice-presidential hopeful, proposed to slash the CFPB's 2013 funding by more than half. A more radical proposal in April by Republican Sen. Jim DeMint seeks to repeal the entire Dodd-Frank Act, which would nix the CFPB.
Romney also promises to repeal Dodd-Frank, "and replace with streamlined, modern regulatory framework," according to his campaign website.
"I'd like to get rid of Dodd-Frank and go back and look at regulation piece by piece," Romney said at a fundraiser in August. "I very much believe in updated regulation, but I believe Dodd-Frank has gone beyond what was appropriate."
Romney's campaign website doesn't specifically address the CFPB. His campaign did not respond to a request for comment.
However, in May, Romney's chief economic adviser told The Wall Street Journal that Romney will propose to disband the consumer watchdog and place its supervisory powers with existing regulators. At the very least, the adviser said, Romney would move the agency outside the Federal Reserve and make it dependent on Congress for funding.
Consumer advocates note that dispersing the CFPB's oversight powers to other regulators is stepping back to the days before the financial meltdown.
"We've done that and seen that, and it didn't work out that well," says Ruth Susswein, deputy director of national priorities at consumer-advocate group Consumer Action. "It's basically allowing self-regulation again. And that has failed."
However, many congressional Republicans and conservative economists contend the CFPB has too much power and is too insulated from Congressional oversight. Todd Zywicki, foundation professor of law at George Mason University, testified before Congress in May that the CFPB should be modeled after the Federal Trade Commission, which is led by a five-member bipartisan panel.
"Instead, what I think is we've created a monster of an agency that is going to reduce access to credit, increase the cost of credit, and ironically, have the unintended consequence of probably exposing more consumers to fraud and abuse when it comes to lending products," Zywicki concluded at the hearing.
There is a camp that believes the CFPB could survive a Romney administration, mostly because he has other, larger priorities. So far, the campaign has revolved around the hot-button issues of balancing the budget and Obama's health care reform.
"I still think we'll see the CFPB, even if Romney wins," says John Ulzheimer, president of consumer education at SmartCredit.com. "It doesn't seem that important of a campaign issue. I don't hear people screaming about the CFPB."
And there's this salient stat: Two-thirds of likely voters believe the CFPB is needed, according to a July poll for a coalition of consumer advocacy groups such as Americans for Financial Reform and AARP.
It's a no-brainer that the CFPB, which was created during Obama's administration, would stay in business if the president wins re-election. Despite push-back from Congress, the agency so far has flexed some muscle in its first year.
Before it even had a director, the CFPB set up an online center to take consumer complaints about credit cards and mortgages, and it released a template for a clearer credit card agreement. The online center expanded in March to include bank complaints.
Since Cordray took his position in January, the agency has put credit reporting bureaus under its purview.
It also started studying other consumer products such as student loans and prepaid cards. The bureau proposed new mortgage-servicing and home-appraisal rules, and issued reports on private student loans, reverse mortgages, remittance transfers and credit scores. And the CFPB made its credit card complaint database public.
In its first enforcement action, the agency, along with the Office of the Comptroller of the Currency, leveled a $150 million restitution and $60 million penalty on Capital One in July for deceptively selling payment-protection services to credit card holders. Shortly after, other banks voluntarily stopped selling these add-on products. In September, the agency ordered Discover to refund $200 million to credit card holders and pay a $14 million penalty for unfairly selling add-on products.
"It's been a long time since I've seen something like that from the FTC," Ulzheimer says. "It's a slam-dunk because of the ripple effect."
Under another Obama administration, the agency could become even more aggressive with an extra four years of life, says Ulzheimer.
Bartmann noted that the agency has issued more than 100 investigative subpoenas to gather data on markets it supervises. It's expected to focus soon on the credit reporting market and debt-collection industry, so expect more enforcement actions when inappropriate practices turn up. The agency will continue working to make the mortgage process easier to understand for consumers. All that activity likely will cement the agency's place in government.
"The more they do, the more they are put in place," Bartmann says. "The larger they grow as an agency, the harder (it will be) to disband it down the road."