THE TUSSLE OVER Richard Cordray’s successor as director of the Consumer Financial Protection Bureau underscored a new reality for Massachusetts Sen. Elizabeth Warren.
The agency she created, which was by a quirk of her design the final holdout in a Washington regulatory apparatus that President Donald Trump has bent to his deregulatory will, is now in Trump’s hands. And here’s the hard reality: There’s little she can do about it.
In 2007, Warren, then a Harvard Law School professor, first proposed an agency to protect consumers from financial predation in an article for Democracy. After the financial crisis of 2008, she lobbied Congress, and most prominently then-Massachusetts Rep. Barney Frank, to include the agency in the 2010 Dodd-Frank law that bolstered Wall Street regulation.
She wanted to be the agency’s first director, but when Senate Republicans made it clear they would never confirm her, she took a job with President Barack Obama to help set up the agency. Obama picked Cordray, the attorney general of Ohio, for the job.
The agency design on which Warren, Frank, and former Connecticut Sen. Chris Dodd agreed provided for an independent director, appointed by the president and confirmed by the Senate, but with a five-year term unaligned with the president’s.
Cordray, confirmed in July 2013, plugged away through most of 2017. He finalized rules barring companies from requiring customers to go to arbitration rather than court to resolve disputes. He also upended the way the short-term, high-interest, payday lending industry does business. He could have served until this summer, but stepped down at the end of November to mount a gubernatorial bid in Ohio this year.
Cordray made a last-ditch effort to appoint a successor to fill out his term, while Trump put forward as a temporary replacement former South Carolina representative Mick Mulvaney, who was a member of the ultraconservative House Freedom Caucus and now serves as Trump’s budget director. A court fight ensued. In late November, a federal district court judge sided with Trump and installed Mulvaney.
So now Warren, who helped design the agency, staff it, and cheered Cordray on, finds herself out of the loop. It hasn’t been easy. When Trump signaled he would appoint Mulvaney, Warren called it a “giant middle finger to consumers.”
But Warren says in an interview that she holds out hope that the bureau will continue to go after financial predators and write rules to protect consumers. “This is a big test for Donald Trump,” she says. “During his campaign, he said he wouldn’t let Wall Street get away with murder. The best way is to let the cop on the beat do its job.”
Still, there’s little reason to hope Trump will grant the consumer bureau a reprieve from his anti-regulatory approach. Days after taking office, Trump ordered executive branch agencies to rescind two rules for every new one they write. He decried bureaucracy: “Instead of rebuilding our country, Washington has spent decades building a dense thicket of rules, regulations, and red tape,” he said.
Since then, Trump’s administration has delayed, rewritten, and rescinded more of his predecessor’s regulations than any previous president. From Obama’s rules to curtail power plant pollution to his push to expand eligibility for overtime pay, Trump has replaced Obama’s prescriptions with ones more to the regulated industries’ liking.
On November 1, Trump signed a congressional resolution rescinding Cordray’s arbitration rule, not only removing it from the books but also barring the agency from ever pursuing a substantially similar regulation without approval from Congress.
Mulvaney has frozen hiring at the bureau, as well as new regulations.
Warren admits she’s “worried about the future of the agency under Republican control. A poor director could cause the agency to bring fewer enforcement cases and ease off on supervisory responsibilities, undermining the agency and its mission.”
Rick Manning of the group Americans for Limited Government makes clear a diminished agency is his goal. “Now that Richard Cordray is gone, it’s time to undo his work,” he says.
Trump can curtail enforcement actions that the consumer bureau has taken against lenders and others, resulting in nearly $12 billion in settlements, debt cancellations, principal reductions, and other forms of financial relief since 2011.
But there’s only so much Trump can do to wipe existing regulations off the books. Ones in the works, or recently finalized, are vulnerable. The regulation Cordray finalized in October to limit how many loans payday lenders can make to debt-strapped consumers is probably kaput. But to rescind older regulations, the agency would have to embark anew on a laborious rulemaking process and fend off legal challenges from consumer advocacy groups.
That means a plethora of Consumer Financial Protection Bureau rules tightening the standards governing mortgage-lending and protecting credit card users and bank customers will likely remain.
Consumer advocates are readying for legal battle if a new appointee isn’t enforcing existing rules, or moves to rescind them. “It’s not a forgone conclusion that the CFPB will not take action to protect consumers,” says Amit Narang, regulatory policy advocate at Public Citizen. “To the extent that they don’t, there’s a greater likelihood of litigation than not.”
Warren plans to use her role on the Banking, Housing, and Urban Affairs Committee to hold the agency accountable. “I will hold the new director’s feet to the fire,” she says.
Warren and other backers of the agency also expect that a new director inclined to curtail its ambitions will have to face a career staff assembled by Warren and Cordray who want to do the opposite.
“Much of the CFPB’s core—its mission, vision, values, strategy—is institutionalized and thus will carry forward from leader to leader,” says Ethan Bernstein, a Harvard Business School professor who worked at the agency in high level posts from 2011 to 2013.
Still, political appointees tend to eventually win those battles. Witness the spate of high-profile retirements from the Environmental Protection Agency and the State Department, two agencies that have undergone big changes during the Trump administration.
And Barney Frank says not to expect anything different at the CFPB until the Democrats regain control of the White House. He expects a “very serious diminution of activity” at the agency.
“You can’t force people to administer,” he says. “It’s crushing in many ways [for existing employees.] They won’t be forced to say swindling consumers is good, but they’ll have to go on internal vacations for a couple years.”