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CFPB Uncertainty Reigns in Reverse Mortgages and Beyond

Every presidential succession brings uncertainty, but with the new Trump administration promising considerable changes to the structure of government and conflicting reports about the fate of certain Obama-era guidelines, the first few months of 2017 have proven particularly cloudy from a regulatory standpoint.

The Consumer Financial Protection Bureau has been at the center of the national regulatory discussion: Born of Dodd-Frank and initially led by consumer advocate and now-Democratic Senator Elizabeth Warren of Massachusetts, the bureau has long been a thorn in the side of pro-business Republicans and many in the financial industry. In the weeks since the GOP took complete control of both elected branches of the federal government, party leaders have made many proposals to weaken the CFPB, either by killing it entirely or changing its powers.

Just this week, early reports about Trump’s proposed fiscal year 2018 budget suggest that the president supports the GOP’s proposal to switch the CFPB’s source of funding from the Federal Reserve to a Congressional appropriation. Such a move, Bloomberg Politics notes, would naturally grant Congress greater control over the agency, which was designed to operate independently from the desires of legislators. Trump notably did not mention the CFPB or Dodd-Frank in his fist address to a joint session of Congress on Tuesday.

Bluster on Both Sides

Rep. Jeb Hensarling, the Texas Republican who chairs the House Financial Services Committee, has been outspoken in his desire to gut the CFPB. Earlier this month, his office sent out a release featuring choice quotes from an interview he conducted with Bloomberg TV, in which he dubbed the bureau a “rogue agency,” said its name was “Orwellian,” and slammed the agency’s power to institute regulations.

“The greatest way to protect consumers is to ensure we have competitive, innovative, vibrant credit markets,” Hensarling said. “In many respects, CFPB has hurt them.”

Hensarling and the GOP are touting what they call the Financial CHOICE Act, which — among other provisions — would rechristen the agency as the Consumer Financial Opportunity Commission, tasked with both consumer protection and the promotion of free and competitive markets, and replace the CFPB’s one-person directorship with a bipartisan five-member commission subject to Congressional oversight. The plan would also strip the renamed commission’s power to ban “abusive” lending products, and require it to conduct cost-benefit analyses for all new regulations.

Two of Hensarling’s fellow Texas Republicans, Sen. Ted Cruz and Rep. John Ratcliffe, went a step further earlier in February, introducing joint bills that would do away with the CFPB entirely.

Across the aisle, House Financial Services Committee ranking member and California Democrat Maxine Waters blasted the GOP’s moves, calling them “shameful” and part of “President Trump’s Wall Street First agenda.”

“Simply put, the CFPB stands up for people who have been ripped off by Wall Street and predatory lenders, and puts money back in their pockets,” Waters said in a statement earlier this month.

But Change Still Incremental

Amid all the bluster and the competing press releases, it’s important to remember that institutional change typically comes slowly in Washington no matter who’s at the helm — and thus the chances of the CFPB disappearing entirely are slim to nonexistent. Christopher Willis, who leads the Consumer Financial Services Litigation Group at the law firm of Ballard Spahr, LLP, was more direct: Despite their opposition to regulations, the Republicans don’t want to be seen as the party that dismantles an agency designed to protect consumers.

“The experience of the subprime mortgage crisis is still fresh in everybody’s mind, and the Great Recession is still fresh in everybody’s mind, and I don’t think that the Republicans can safely do away with the agency given the perceived value it has to the electorate,” Willis said.

Willis thinks the transition from one director to a five-person board is likely to happen, noting that both the Securities and Exchange Commission and the Federal Trade Commission have similar oversight structures. As for remaining changes to the bureau and its power, Willis framed them as more gradual and moderate, with different effects on each of the bureau’s three main tasks: rulemaking, enforcement, and supervision.

Of those, Willis said he believes the rulemaking arm will be affected most, as GOP appointees work to slow down the pace of new regulations. At the same time, the enforcement employees’ collective attitude will remain largely unchanged even amid transition at the top, as workers seek to enforce existing regulations at a similar clip as in the past. These competing forces, Willis predicts, will moderate the pace of change at the agency, with any major shifts in policy or outlook taking several years at the least.

The supervisors who work most directly with financial institutions will likely see the slowest change in mindset, Willis said, as they have close contact with key figures in the industry — and both sides want to maintain pleasant and professional day-to-day relations.

Written by Alex Spanko