New Changes Inside Consumer Financial Protection Bureau Could Leave Consumers Vulnerable

• Policy changes enacted on the 24th of January could encourage financial firms to indulge in abusive practices with their customers.
• Experts believe the changes have reduced the effectiveness of the CFPB in enforcing rules that protect consumers around the US.
• Changes come at a time when experts have already observed a reduced enforcement activity at the agency during the Trump government.

The CFPB was created after the financial crises of 2008 to keep bad players operating on Wall Street in check. However, legal experts, as well as consumer advocates, are now of the opinion that the Consumer Financial Protection Bureau has been weakened due to a new enforcement policy introduced by the Bureau itself.

According to an announcement made by the CFPB on the 24th of January, changes have been introduced in the process of overseeing and reprimanding abusive actions taken by financial institutions. Most importantly, the Bureau would be penalizing abusers in a reduced number of cases, and would also require any investigation to be conducted only after a cost-benefit analysis has been conducted, whereby the harm to consumers must outweigh the benefits.

The CFPB believes that its changes to the new rules, that came into effect on January 24th, are meant to benefit key stakeholders, including customers and financial service providers. However, experts believe these changes would open doors for financial firms to exploit their customers in an easier manner since the risk of being penalized for misconduct has effectively been reduced.

The entire premise of the 2008 financial crises was irresponsible lending on part of financial service providers to customers who were likely to default on their loan obligations. To prevent this from happening again, Congress passed a reform law called the Dodd-Frank Act, which led to the formation of the CFPB. Under the Act, the CFPB was held responsible for ensuring the enforcement of rules pertaining to consumer protection in the US.

So far, the CFPB has been effective in enforcing rules, having retrieved over $12 billion for customers around the country. However, experts have observed enforcement practices to be lagging under the Trump government.

According to a report released back in March 2019 by the consumer advocacy group called the Consumer Federation of America, in 2018 the number of cases filed for public enforcement was down by approximately 80% compared to figures reported in 2015, a year before Trump assumed office.

Under Trump, the acting director of the agency was changed in 2017, with Mick Mulvaney taking the role from Richard Cordray even though the latter had yet to complete his five-year term. Since 2018, Kathy Kraninger has been the director of the CFPB. Kraninger has worked with Mulvaney in the past in the budget office of the White House and has also been appointed by Trump.

It is important to note that a case is pending at the Supreme Court that could declare the CFPB unconstitutional.

However, not everyone is against the changes. Richard Hunt, who works at the Consumer Bankers Association as its President/CEO, the changes are meant to benefit everyone in the financial services industry, including customers, due to increased clarity in regulation.

Also, the policy would stop the bureau from categorizing a practice as an abusive one if it has already been categorized as deceptive/unfair. This means consumers might have to make more effort to prove an abusive practice.

Furthermore, abusers might not be penalized or asked to return ill-earned money if it can be proven that they made an effort in good faith to follow all the prescribed rules. This may be the most significant change to the rules, according to Patricia McCoy, a professor of law working at the Boston College Law School, as it significantly reduces the chance of financial firms incurring heavy fines/reimbursements as a result of abusive practices.

In short, at least according to Rep. Maxine Waters, who chairs the House Financial Services Committee, these changes would encourage firms to indulge in anti-consumer practices of the same kind that led to the financial crises in 2008.