Financial Watchdog Expected To Get Its Teeth Back Under Biden

Nov 18, 2020
Originally published on November 18, 2020 5:13 pm

The Consumer Financial Protection Bureau was created after the last financial crisis to be the tough cop on the beat, making sure people don't get taken advantage of by lenders, debt collectors or other companies. It's returned $12 billion to people harmed by financial firms.

"This agency was designed to be a watchdog," says Deepak Gupta, a former top enforcement lawyer at the bureau. "That mission is more important than ever."

With millions of Americans in desperate financial straits due to the pandemic, he says, more people are vulnerable to predatory practices.

But under the Trump administration, this federal watchdog had its teeth removed. President Trump put one of the bureau's fiercest Republican critics, Mick Mulvaney, in charge of running it.

As a congressman, Mulvaney called the bureau "a joke." He said, "That's what the CFPB really has been in a sick, sad kind of way." Mulvaney sponsored legislation to abolish the bureau.

Under Mulvaney and his successor, the number of enforcement cases fell sharply. By one count, the money the bureau returns to consumers dropped by 96%.

But in its zeal to weaken the agency, the Trump administration backed a lawsuit claiming that the bureau was unconstitutional, in part because its director had too much power and couldn't be removed by the president. The case eventually went all the way to the Supreme Court. And this past summer, the court said the president could fire the director.

But by then Trump's director was already in place, so he had no need to fire anybody. And so the lawsuit, in a sense, backfired, because had the suit not been brought, President-elect Joe Biden would have been stuck with a Trump-appointed director at the CFPB for years to come.

"The irony of that is that now on Day 1, President Biden will be able to name his own director — someone who is much more committed to the mission that the agency has to look out for American consumers," Gupta says.

Meanwhile, Gupta says there's a lot to be done. Just one example: Millions of American homeowners have been able to skip mortgage payments if they lost income during the pandemic. Congress mandated that flexibility for most mortgages under the CARES Act to prevent foreclosures during the pandemic. And lenders are not supposed to stick people with unaffordable repayment plans.

"The CFPB can make sure that banks and financial companies are actually following those rules," Gupta says.

The pandemic recession has hit many lower-income communities hardest. Aracely Panameño, director of Latino affairs at the Center for Responsible Lending, says that people in such communities are more likely to get into trouble borrowing from high-interest rate payday lenders.

"They are highly concentrated in communities of color, Black neighborhoods, Latino neighborhoods," she says.

The Trump administration weakened a rule that aimed to protect people who get payday loans. Panameño says she hopes the bureau can strengthen that rule. But she says in the meantime, the CFPB can still be policing deceptive or unfair practices — not just by payday lenders, but also online lenders, and auto-title lenders who have people put their vehicles up as collateral.

"For a certain type of car title loans, 20% of borrowers end up in repossession — losing their car, truck," Panameño says.

For their part, financial firms don't want the agency under Biden to be too aggressive. Mary Jackson, CEO of the industry group the Online Lenders Alliance, says too much regulation can prevent people from borrowing money when they need it.

"It's really important for everyday working people to have access to capital and access to credit so they can get their car repaired, so they can keep their lights on, so that they can take care of their children," Jackson says. "And it really is up to the government to make sure they strike that balance in their policies."

Still, there's been a sharp increase in complaints to the CFPB during the pandemic. So Gupta, the former CFPB attorney, is looking forward to the watchdog getting its teeth back.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

MARY LOUISE KELLY, HOST:

Millions of Americans are in desperate financial straits, which leaves them more vulnerable to predatory lenders. There is a federal agency that's supposed to protect people from that sort of thing, but critics say the Trump administration has blocked it from doing its job. As NPR's Chris Arnold reports, that is about to change.

CHRIS ARNOLD, BYLINE: The Consumer Financial Protection Bureau was created after the last financial crisis to be a tough cop on the beat, making sure that people don't get taken advantage of by lenders or debt collectors or other companies. It's returned billions of dollars to people who've been harmed by financial firms.

Deepak Gupta is a former top enforcement lawyer at the bureau.

DEEPAK GUPTA: This agency was designed to be a watchdog, and that mission is more important than ever.

ARNOLD: But under the Trump administration, basically this watchdog had its teeth removed. Trump put one of the bureau's fiercest Republican critics in charge of running it, Mick Mulvaney. As a congressman, Mulvaney called the bureau a joke.

(SOUNDBITE OF ARCHIVED RECORDING)

MICK MULVANEY: A joke. And that's what the CFPB really has been - in a sick, sad kind of way. Some of us would like to get rid of it.

ARNOLD: Under Mulvaney and his successor, the number of enforcement cases fell sharply. By one count, the money the bureau returns to consumers fell by 96%. But in its zeal to weaken the agency, the Trump administration backed a lawsuit calling the bureau unconstitutional, in part because its director had too much power and couldn't be removed by the president. The case eventually went all the way to the Supreme Court. And just this past summer, the court said, yes, the president could fire the director. But by then, Trump's director was already in place, so the whole thing kind of backfired.

GUPTA: And the irony of that is that now on Day 1, President Biden will be able to name his own director, someone who is much more committed to the mission that the agency has to look out for American consumers.

ARNOLD: And if it hadn't been for that lawsuit, Biden would have been stuck with Trump's appointee for years to come. Meanwhile, Gupta says there's a lot to be done. Just one example - millions of American homeowners have been able to skip mortgage payments if they lost income during the pandemic, and lenders are not supposed to stick those people with unaffordable repayment plans.

GUPTA: The CFPB can make sure that banks and financial companies are actually following those rules.

ARNOLD: Also, the pandemic recession has hit many lower-income communities hardest. Aracely Panameno is with the Center for Responsible Lending. She says these are the places where people are more likely to get into trouble borrowing from high-interest rate payday lenders.

ARACELY PANAMENO: They are highly concentrated in communities of color, Black neighborhoods, Latino neighborhoods.

ARNOLD: The Trump administration weakened a rule that aimed to protect people who get payday loans. Panameno hopes the bureau can strengthen that rule. But she says in the meantime, it can still be policing deceptive practices, not just by payday lenders but online lenders and auto title lenders. They have people put their vehicle up as collateral.

PANAMENO: For a certain type of car title loans, 20% of borrowers end up in repossession, losing their car, truck.

ARNOLD: For their part, financial firms don't want the agency under Biden to be too aggressive. Mary Jackson is the CEO of the industry group the Online Lenders Alliance. She says too much regulation can prevent people from borrowing money when they need it.

MARY JACKSON: It's really important for everyday working people to have access to capital and access to credit so they can get their car repaired, so they can keep their lights on, so that they can take care of their children. And it really is up to the government to make sure they strike that balance in their policies.

ARNOLD: Still, there's been a sharp increase in complaints to the Consumer Financial Protection Bureau during the pandemic. So Deepak Gupta, the former bureau attorney, he's looking forward to the watchdog getting its teeth back.

Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.