The Consumer Financial Protection Bureau (CFPB) was founded after the financial crisis of 2008 to rein in banks and other financial institutions. But the Trump Administration is not a fan and, with a GOP majority in Congress, is likely to trim the agency's sails, if not sink it entirely.
The CFPB -- created in 2011 to serve as "the cop on the beat" -- has provided more than $16 billion to consumers who were victimized by what the CFPB termed unfair or deceptive practices. It has targeted banks, like Wells Fargo, payday lenders and credit card companies, and has required simple and more complete disclosure of terms by lenders, making it easier for consumers to compare options.
But critics say the CFPB tries too hard. Former Sen. Pat Toomey, R-Pa., once referred to it as "a rogue, unaccountable, anti-business agency."
The CFPB is the brainchild of Sen. Elizabeth Warren (D-MA), who has long assailed banks and financial services companies as being too ruthess in their dealings with consumers. For their part, the banks and finance companies say the CFPB's efforts are hurting their bottom lines and hampering innovation.
Times may have changed for CFPB
The CFPB escaped serious harm during the first Trump term because Democrats retained control of the House during part of that time. But times have changed and Republicans now control both house of Congress, making it easier for Trump II to curtail the CFPB.
There's no clear candidate to head the CFPB yet but the names circulating in Washington have strong ties to the banking industry or are academics with conservative views about government regulation of private industry.
The mood in Congress, even among some Democrats, has been changing lately, with less support for the aggessive regulation that followed the 2008 financial crisis.
Leaving politics aside, the argument comes down to whether consumers need and want more protection against threats to their financial wellbeing and privacy or whether they think stern regulations end up hurting consumers by discouraging businesses from investing in new products and services.
Overdraft fees a sticking point
Take overdraft fees, for example. The CFPB has proposed capping overdraft charges at $14 for larger banks. The banks say that would end up hurting consumers.
Brent Tjarks, executive director of the Mid-size Bank Coalition of America which represents more than 100 midsize banks, wrote that the loss of a "meaningful source of revenue to support the cost of deposit products" left institutions with no choice but to pull back from products "that benefit lower-income and underbanked consumers," according to an account in The American Banker.
Trump didn't talk much about financial regulation during his campaign and at times even talked about capping credit card interest rates. But his Administration is expected to be responsive to the banking industry's pleas.
Not everyone is ready to concede.
“The CFPB is here to stay,” said Sen. Warren, who nearly single-handedly birthed the agency during President Barack Obama's term, in a Washington Post report.
“So I get there’s big talk, but the laws supporting the CFPB are strong, and support across this nation from Democrats, Republicans, and people who don’t pay any attention at all to politics, is also strong,” Warren said.
What has it accomplished?
Most notably, CFPB has collected $16 billion that it has returned to consumers who came up sort on one financial deal or another. What else has it done? From various sources, we came up with this list of actions it has taken on behalf of consumers:
1. Financial Restitution to Consumers
The CFPB has returned billions of dollars to consumers who were victims of unfair, deceptive, or abusive financial practices:
- Over $16 billion in relief provided to more than 200 million consumers (as of 2023).
- Examples:
- Fines and penalties against financial institutions like Wells Fargo for fraudulent account practices.
- Enforcement actions against payday lenders and credit card companies for predatory practices.
2. Promoting Transparency
The CFPB has implemented rules to ensure that consumers have clear and accurate information about financial products:
- Simplified mortgage disclosure forms, making it easier for homebuyers to understand loan terms.
- Regulations requiring credit card companies to disclose terms clearly, enabling consumers to compare options.
3. Regulating Abusive Practices
The CFPB has cracked down on predatory practices across various sectors, including:
- Payday lending: Imposing stricter rules to prevent payday lenders from trapping borrowers in cycles of debt.
- Debt collection: Introducing rules that limit harassment by debt collectors and provide clearer information about debts.
- Student loans: Targeting fraudulent practices by private lenders and for-profit colleges.
4. Supervising Financial Institutions
The CFPB supervises major financial players, including banks, credit unions, and non-bank entities (e.g., mortgage lenders, payday lenders):
- Conducting audits and compliance reviews.
- Holding companies accountable for consumer protection violations.
5. Financial Education and Tools
The CFPB offers resources to help consumers make informed financial decisions:
- “Know Before You Owe” campaigns for mortgages, student loans, and credit cards.
- Financial literacy tools, including budgeting calculators and debt repayment guidance.
6. Advocacy for Marginalized Communities
The CFPB has focused on issues affecting vulnerable populations:
- Fighting racial discrimination in lending practices through enforcement of the Equal Credit Opportunity Act (ECOA).
- Addressing inequities in access to credit for underserved communities.
7. Protecting Consumers in Emergencies
The CFPB has acted during crises to safeguard consumers:
- During the COVID-19 pandemic, it promoted mortgage forbearance options and protection against eviction or foreclosure.
- After natural disasters, it provided guidance to protect disaster victims from financial scams.
8. Enforcement and Settlements
The CFPB has undertaken enforcement actions against high-profile companies:
- Wells Fargo: Penalized for creating fake accounts.
- Navient: Sued for misleading borrowers about student loan repayment plans.
- Equifax: Fined for failing to protect consumer data during its 2017 data breach.
Criticism and Challenges
While the CFPB has accomplished much, it has faced criticism and legal challenges:
- Accusations of regulatory overreach by some in the financial industry.
- Court challenges to its funding structure, particularly its independence from congressional appropriations.
Whatever its fate may be in the future, the CFPB has had a profound impact on the financial landscape, protecting consumers, promoting transparency, and holding financial institutions accountable.
Will consumers and business be better off without those protections? The next few years may hold the answer.