The CFPB: A Tin Soldier With A New Enemy

What is a tin soldier?

Once a popular toy, tin soldiers represented the symbol of bravery. No price was too high for the tin soldier, as they were willing to offer the ultimate sacrifice in defense of their compatriots. America is on the verge of losing one of its greatest tin soldiers, the Consumer Financial Protection Bureau (CFPB).

The CFPB was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 and was charged with overseeing the enforcement of laws designed to protect financial consumers and regulate financial products such as credit cards, mortgages, investments, etc. Much like the Department of Homeland Security was created after the September 11th attacks showed the US needed a centralized agency to focus solely on domestic protection, Congress created the CFPB after the economic collapse in 2008 exposed the lack of a centralized agency that protected financial consumers. A smattering of agencies like the SEC, Federal Reserve, and FDIC oversaw various products and sectors of the economy. Still, no single agency ensured clear and truthful information for financial products, evaluated the quality of financial products, and protected vulnerable citizens from financial scams.

This tin solider has been effective.

The CFPB ensured mortgage agreements were shorter and written in clearer language and became an excellent resource for those with a grievance against a financial institution. Also, remember the 2016 scandal that broke exposing the millions of fraudulent accounts Wells Fargo opened for their clients without client knowledge or approval?

The CFBP is the agency responsible for holding Wells Fargo accountable to the tune of $100 million—full restitution for those affected.

Such an effective agency is bound to have its enemies. Perhaps its most staunch enemy is President Trump, whose CFPB director appointments have led to a stark decline in effectiveness for the CFPB. In fact, the total number of CFPB enforcement actions in 2018 declined by 80% from their peak in 2015, and average per-case monetary relief for victims was down by 96%.

Seila Law, LLC. v. Consumer Financial Protection Bureau

Unsurprisingly, but most importantly, there is currently a case before the Supreme Court attempting to have the agency ruled unconstitutional. Seila Law, LLC. v. Consumer Financial Protection Bureau seeks to decide “whether the vesting of substantial executive authority in the Consumer Financial Protection Bureau, an independent agency led by a single director, violates the separation of powers; and (2) whether, if the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers.” Essentially, Seila Law argues that the CFPB weakens executive authority because the term length of CFPB directors is five years, and a presidential term length is four years, meaning a president might not have the opportunity to change CFPB leadership. This is a weak argument, however, given that historically US financial regulatory agencies have been nonpartisan. The Federal Reserve, for example, has a Presidential appointment of four years, nearly identical. At most, Congress could consider shortening the term length of CFPB directors.

Unfortunately, this feeble argument is gaining strong traction. Many are predicting a win for Seila Law and the destruction of the CFPB because Seila Law has powerful allies like Supreme Court Justice Brett Kavanaugh, who already ruled in favor of the CFPB’s destruction as a part of not just one but two lower circuit court rulings.

So, Do we need the CFPB?

Are financial institutions going to self-regulate? The numbers definitely rule in favor of the CFPB. As you can clearly see in Figure 1 below, billions upon billions of dollars in fines and restitution have been collected from various financial institutions over the last few decades due to an embarrassingly large number of violations. Furthermore, American citizens believe we need regulation of financial institutions and products. In 2019, an AFR/CRL poll concluded that roughly three in four voters say that further accountability is needed, while only 11% said that companies’ practices have changed enough that they don’t need additional regulation. Furthermore, the CFPB is the agency that can ensure housing companies comply with privacy and discrimination laws and fee regulation—the types of rules that protect Americans from homelessness.

Figure 1. Violation Tracker Agency Summary Page

Source: “Violation Tracker Industry Summary Page,” Good Jobs First, accessed January 2020

Today, America stands at a crossroads

The One Tin Soldier built for this onslaught is being destroyed by those who should be protecting him. Today, America stands at a crossroads—will we protect our citizens from corrupt practices of financial institutions, or will we allow financial institutions to become corrupted and destroy our housing markets, retirement incomes, and basic flow of transparent, truthful information?