Most of us remember the financial crisis of 2008 when ongoing concerns about how things were proceeding with the housing market were finally realized. Lehman Brothers was allowed to fail and the stock market responded in dramatic fashion.
In the wake of the financial crisis, it became clear there were many causes of it. Part of the problem, though, was that many Americans didn’t fully understand the consequences of their financial choices. Contracts were often so filled with jargon and legalese that it was hard for borrowers to know what they were really agreeing to. Plus, there’s evidence that unethical behaviors in the financial services industry contributed as well.
Enter the Consumer Financial Protection Bureau
To help combat predatory practices that hurt consumers, the Consumer Financial Protection Bureau (CFPB) was created in 2010 as part of the Dodd-Frank Act. The CFPB was given unprecedented power to look into alleged abuses by those in the financial services industry. Since then, the agency has issued new rules, enforced existing rules, and even handed down fines.
But now the CFPB is under fire. A recent court ruling and continued criticism from conservatives in Congress might change the way the agency operates going forward. If you work wit a difficult student loan servicer, have been caught in the cycle of payday loans, or worry about being scammed by a shady organization, changes to the CFPB could have consequences to your wallet.
Does the CFPB have too much power?
While the Constitutionality of the CFPB isn’t a subject of debate, the way the agency is structured has become a sticking point. On October 11, 2016, a circuit court in Washington, D.C. issued a decision that calls the structure of the agency unconstitutional because there is too much “unilateral power” given to the director of the CFPB.
The CFPB was set up to be as independent of political influence (and backlash) as possible; it is not directly subject to oversight from other government branches. Even though the president appoints the director of the CFPB, and the Senate confirms him or her, other oversight isn’t provided by Congress, the Courts, or the Executive branch.
In fact, funding for the CFPB isn’t even subject to Congress. Instead, the agency gets its money from the Federal Reserve.
The ruling earlier this month says that the director of the CFPB has too much power and things need to change. However, supporters of the agency point out that the Federal Reserve is similarly independent and there is already adequate oversight for the CFPB.
The actions of the CFPB are subject to veto by the Financial Stability Oversight Council, which is an arm of the Treasury Department. Plus, before making a ruling, the CFPB observes a long public notice and comment period.
These realities, insist supporters, provide enough oversight that the CFPB can’t do too much, while still providing enough independence that the agency can continue its important work of advocating for consumers.
Detractors, on the other hand, want to see the CFPB shut down and even Dodd-Frank invalidated, while a new plan is made to protect consumers. Moves to restrict the CFPB’s budget have already been taken and some conservative think tanks, such as the Heritage Foundation, would like to see the agency completely dismantled.
What has the CFPB done for me lately?
So far, the CFPB has been rather active in cracking down on practices it considers predatory. Recently, the agency levied a $100 million fine against Wells Fargo for its account-opening practices. The CFPB has also levied fines against debt-relief companies for charging fees the CFPB considers illegal. Additionally, it has issued rules that require mortgage lenders to verify the ability of borrowers to repay their loans.
In terms of student loans, the CFPB has been working to protect consumers. The agency put a stop to a student loan debt relief scam, and is investigating the practices of student loan servicers. The CFPB has taken a number of steps to try to protect student loan borrowers, create more transparency in the repayment process, and hold servicers accountable for practices that put borrowers at a disadvantage.
The loss of the agency could be a blow to some of the transparency achieved in the last few years. Additionally, some of the protections that student loan borrowers have received recently could disappear.
While the court ruling doesn’t immediately mean it’s the end of the CFPB (don’t forget about the appeals process), there could be changes ahead. Creating a situation where the agency is subject to political pressure and retribution could affect how aggressive the CFPB is in protecting consumers and going after predatory practices.
What are the chances the CFPB disappears completely?
For now, the best protection the CFPB has is in its popularity. According to a recent poll, 71 percent of voters approve of the Consumer Financial Protection Bureau after hearing a description of its purpose. After hearing for-and-against arguments related to the CFPB, 79 percent of Democrats, 67 percent of Republicans, and 63 percent of Independents take a positive view of the agency.
As a result, if voters continue to see the agency in a positive light, it is unlikely to disappear altogether. However, the effectiveness of the CFPB could change significantly if voters aren’t paying attention and demand that their representatives commit to strong consumer financial protection.
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