Newly announced Trump administration plans to weaken or eliminate many financial-industry regulations enacted after the 2008 financial crisis mark the opening shot in what consumer groups predict will be a long Washington siege.
On Tuesday, the day after the Department of the Treasury issued the most detailed blueprint yet of proposed changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, banking and other financial groups celebrated Trump's backing of changes they've sought for years. The list ranged from restructuring and weakening the Consumer Financial Protection Bureau to reexamining Wall Street trading and mortgage rules.
"The Treasury Department's report is an important first step in recognizing how a duplicative and onerous regulatory environment harms banks, the economy, and, more importantly, consumers," said Richard Hunt, the CEO of the Consumer Bankers Association, a trade association for retail banks.
Consumer advocates argue that the proposals represent an unwarranted weakening of rules that have helped many Americans complaining of financial mistreatment and reined in banks and Wall Street after their excesses contributed to the nation's worst economic crisis in generations. But major changes won't come soon, if at all, because eliminating federal laws or Washington agency rules can take years, the advocates say.
"The prospects for preventing the rollback of many of these rules are actually quite good in terms of delay, and probably not bad in terms of preventing," said Dennis Kelleher, the president and CEO of Better Markets, a Washington, D.C.-based nonprofit group that promotes the U.S. public's interests in financial markets. "Enacting the administration's regulatory agenda can be as difficult as enacting its legislative agenda if there is effective opposition."
Lobbying for and against the rollbacks will likely spread across multiple fronts. Nowhere are the disagreements hotter than over the fate of the Consumer Financial Protection Bureau. Echoing complaints from Congressional Republicans, the Treasury report said the CFPB's leadership — a lone director only loosely accountable to the president and wielding authority to enforce 18 federal financial laws — has made the agency "unaccountable to the American people."
But Alys Cohen, a staff attorney for the National Consumer Law Center, said the proposals would "kick the legs out from under the CFPB," which reported it had provided nearly $12 billion in relief and assistance to more than 29 million consumers from its 2011 opening through the end of February 2017.
John Lukach, of St. Paul, Mn., agreed. He filed a complaint with the CFPB that said Navient, the servicer for his nearly $60,000 in private student loans, did not respond to requests for more affordable repayment options that would reduce his monthly bill. Within two days, a Navient representative contacted him to discuss available alternatives, "something that probably wouldn't have happened" without the CFPB, Lukach said.
The Treasury recommendations for the consumer agency include:
- Authorizing the president to remove the CFPB's director at will, rather than only when he or she is found to have done something improper.
- Considering an alternative leadership structure of an "independent, multi-member commission or board."
- Changing the agency's funding procedure to require oversight by the U.S. Office of Management and Budget, as well as congressional review.
- Switching enforcement actions to federal courts, rather than administrative proceedings handled internally at the agency.
- Eliminating public access to underlying data in the agency's consumer complaint database by restricting that material to federal and state agencies.
- Stripping the agency's supervisory authority over banking and other areas covered by other regulators.
Paul Merski, a Community Bankers of America vice president, applauded yet another proposal, one that would exempt banks with assets of $10 billion or less from complying with CFPB rules that remove some risk features from mortgage loans. That list includes an "interest-only" repayment period, balloon payments required at the end of some mortgages, loan terms longer than 30 years, and excessive upfront fees charged to consumers.
"The main reason for community bank relief is so that they can support growth and jobs," Merski said.
The CFPB maintained an official silence on the Treasury proposals. Instead, the regulator announced that its director, Richard Cordray, would hold a Thursday public event in Raleigh, N.C. to discuss student loan servicing issues, an area of continuing concern for students who say some loan servicers have not helped the get into income-based repayment plans.
A sampling of consumers referred by advocacy groups defended the agency.
In Arkansas, Myra Brewer, 71, said a debt collector called her and tried to force her to repay a roughly $3,000 credit card debt the company said was owed by her late daughter. She refused, even as the company called multiple times a day for weeks, Brewer said. Ultimately, she obtained the name of the bank that had put the purported loan out for collection and then filed a complaint with the CFPB. "That got action," she said.
In Florida, a mortgage loan originator Pamela Marron noticed that many former homeowners who'd been caught in a wave of financial crisis short sales — selling their houses for less than the mortgage total — had trouble reentering the housing market. The reason, she determined, was that the nation's three major credit reporting agencies coded the short sales as foreclosures. That meant the consumers could not qualify for conventional, federal government-backed mortgages for seven years.
After Marron filed complaints with the CFPB, banks re-coded the consumers' mortgage applications and started processing them. "The CFPB people were very helpful because they understood the data we were looking at," she said.
Armed with similar consumer experiences, advocacy groups are already discussing efforts to block Washington's efforts to weaken the CFPB.
Kelleher, the Better Markets CEO, likened the efforts to the recent consumer drive that stopped the administration from derailing an Obama-era rule that now requires financial advisers to put consumers' interests above their own. The regulation went into partial effect last week, but enforcement isn't set to start until January.
"Big parts of that coalition will also work against deregulation" elsewhere in the financial industry, Kelleher said.
Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc