Consumer Watchdog Might Bite Harder Under Biden

WILMINGTON, DE - NOVEMBER 23:  President-elect Joe Biden speaks during a virtual meeting with the United States Conference of Mayors on November 23, 2020 in Wilmington, Delaware. As President-elect Biden waits to be approved for official national security briefings, the names of top members of his national security team are being announced to the public. Calls continue for President Trump to concede the election and let the transition proceed without further delay. (Photo by Mark Makela/Getty Images)
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 Mark Makela / Stringer / Getty Images

U.S. President-elect Joe Biden will have the power to reshape the Consumer Financial Protection Bureau (CFPB) as soon as he takes office, potentially unleashing the watchdog from what critics see as the tethers of the Trump administration.

Key Takeaways:

  • The incoming Biden administration has the power to reshape the Consumer Financial Protection Bureau, thanks to a Supreme Court ruling giving the sitting president the power to remove the agency’s director at will.
  • The agency was founded in the wake of the 2008 financial crisis to protect consumers from abusive lending, but critics say the CFPB directors appointed by Trump have often neglected their interests and taken the side of business.
  • Consumer advocates say the agency’s work has special importance during the pandemic, when people are more vulnerable to being taken advantage of financially.

The agency was created in the wake of the 2008 financial crisis to protect consumers from deceptive or abusive lending practices, but has come under fire during President Donald Trump’s tenure for weakening or avoiding safeguards in favor of businesses. Under the current director, Trump appointee Kathleen Kraninger, the CFPB has rolled back restrictions on lenders of high-cost payday loans and given broad leeway for debt collectors to pursue debtors

“The CFPB was established to be the voice for consumers to ensure the financial system never again manipulated people for unscrupulous profit,” Aaron Klein, policy director for the Brookings Institution’s Center on Regulation and Markets, wrote in an online opinion piece for the think tank. “The Trump Administration tried its best to systematically neuter the agency.”

While Kraninger’s five-year term doesn’t end until 2023, Biden will have broad authority to replace her after a Supreme Court ruling this summer gave the sitting president the power to remove the agency’s director at any time for any reason. Before the decision, the president could only end the director’s term early if there were “inefficiency, neglect of duty, or malfeasance in office,” according to the law.

Still, Biden’s choice for her replacement may need to be moderate enough to get Senate confirmation, should the Senate remain under Republican control. Not only that, but the Democratic president could be in for a legal battle if he names an acting director prior to Senate confirmation, some legal observers have said, citing differing interpretations of the Federal Vacancies Reform Act of 1998. 

Consumer advocates say changes in the CFPB are long overdue, and the stakes are even higher since the COVID-19 pandemic rocked the economy, making millions of people susceptible to scammers trying to take advantage of their financial stress. The CFPB—tasked with supervising financial services providers and enforcing the rules—logged a 75% increase in the number of monthly complaints from consumers between February and October, with October’s 44,023 complaints an all-time high for the agency, according to its online database.

“We are hoping that a new administration would refocus on consumers, and prioritize the desperate need for further consumer protections in the financial marketplace as evidenced by drastically rising complaint volumes,” Rachel Gittleman, the financial services and membership outreach manager for the Consumer Federation of America, wrote in an email. 

The CFPB did not respond to a request for comment from The Balance, but a spokeswoman told CNBC in October that total consumer redress and relief in 2019 was bigger than all but two other years in the agency’s history, and that 2020 was on pace to have the most enforcement actions in five years. 

Leadership Changes

Congress established the CFPB as part of the 2010 Dodd-Frank Act, a package of financial reforms put in place after risky mortgage lending practices and investments led to a collapse of the housing and financial markets in 2008, just before Democratic President Barack Obama took office. 

Obama appointed Richard Cordray, a former Ohio attorney general who had sued some of the nation’s largest financial companies, as the CFPB’s first director, and toward the end of his tenure at the agency, Cordray boasted that the agency had secured roughly $12 billion in relief for 30 million people who were cheated or mistreated.

When Cordray stepped down in late 2017, Trump, a supporter of the Republican ideology that rolling back regulations stimulates job growth, then appointed Mick Mulvaney, director of the Office of Management and Budget, as its acting director. Years earlier Mulvaney had notoriously said in an interview that the CFPB was a “wonderful example of how a bureaucracy will function if it has no accountability to anybody.” He called it a “joke” in a “sick, sad kind of way,” saying “some of us would like to get rid of it.” 

Consumer advocates say the agency was particularly toothless under Mulvaney’s leadership, and Kraninger, who also came from the Office of Management and Budget, has hardly been better since she took the job in 2018.

In fact, according to a March 2019 analysis by the Consumer Federation, the volume of enforcement actions and amount of monetary relief the CFPB brought to consumers fell dramatically while Trump was president. While there were 55 public enforcement actions in 2015, by 2018, there were just 11, the analysis showed. What’s more, the CFPB returned $43 million in restitution for each week of Cordray’s term, $6.4 million a week under Mulvaney, and just $925,000 under Kraninger. The report accused the agency of reducing enforcement to “nonexistent levels” in areas such as student lending and anti-discrimination.

Most recently, consumer groups have balked at a new set of regulations that address longstanding questions about what constitutes harassment of debtors by debt collectors. Not only are collectors now allowed to call debtors up to seven times a week, but the CFPB chose not to set any limits on the frequency of texts, emails, and social media messages. 

Earlier in the year, the CFPB eliminated a rule put in place under Cordray’s leadership requiring payday lenders to verify that borrowers had the ability to repay their loans—a change that consumer advocates say will only perpetuate debt traps for financially vulnerable families. 

Consumer advocates have also claimed a recently proposed reorganization of the CFPB’s Division of Supervision, Enforcement, and Fair Lending would have weakened its authority and undermined consumer protections, although the restructuring was reportedly shelved in mid-November.

“With record high unemployment rates, consumers are facing unprecedented challenges,” the Consumer Federation’s Gittleman wrote in her email, “but instead of stepping up to help consumers, our regulatory agencies, specifically our financial regulators, have been doing the opposite.” 

Biden’s transition team didn’t respond to requests for comment on his plans, but his CFPB review team is led by Leandra English, who served under Cordray at the CFPB and was slated to become acting director when he resigned. Instead, a power struggle with Mulvaney and Trump ensued, and Mulvaney wound up with the job. 

Biden’s list of potential directors for the agency may include people with reputations for being tough on business, most notably Cordray himself, CNBC reported, citing CFPB experts and insiders, some of whom are privy to deliberations among the transition team.

According to the CNBC report, others on the list may include:

  • Rep. Katie Porter, a Democrat from California on the House Financial Services Committee who has gotten press attention for her aggressive interrogation of corporate executives and even Kraninger during committee meetings.
  • Rohit Chopra, a Federal Trade Commissioner and former CFPB official.
  • Patrice Ficklin, who is currently at the CFPB.
  • Adam Levitin, a Georgetown University law professor specializing in consumer protection.
  • Bharat Ramamurti, a former economic advisor to Sen. Elizabeth Warren, a Democrat from Massachusetts who unsuccessfully ran for president and had pushed for creating the CFPB even before the 2008 financial crisis.

Article Sources

  1. Brookings Institution. "Top 5 Financial Regulatory Priorities for the Biden Administration." Accessed Nov. 23, 2020.

  2. United States Code, 2015 Edition. "Establishment of the Bureau of Consumer Financial Protection." Accessed Nov. 23, 2020.

  3. ACA International. "Competing Laws Could Shape CFPB Director Appointment in 2021." Accessed Nov. 23, 2020.

  4. JD Supra. "Could President Biden Appoint an Acting CFPB Director Under the FVRA? Not if He Fires Director Kraninger First." Accessed Nov. 23, 2020.

  5. Consumer Financial Protection Bureau. "Consumer Complaint Database." Accessed Nov. 23, 2020.

  6. CNBC. "Here’s Who Biden Would Likely Pick as the Top Financial Watchdog for Consumers." Accessed Nov. 23, 2020.

  7. YouTube. "Rep. Mick Mulvaney: CFPB 'Sick, Sad Joke.'" Accessed Nov. 23, 2020.

  8. The Conversation. "Mick Mulvaney Turned the CFPB From a Forceful Consumer Watchdog Into a Do-Nothing Government Cog." Accessed Nov. 23, 2020.

  9. Consumer Federation of America. "Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline." Accessed Nov. 23, 2020.

  10. Bureau of Consumer Financial Protection. "Debt Collection Practices (Regulation F)." Accessed Nov. 23, 2020.

  11. Consumer Financial Protection Bureau. "Payday, Vehicle Title, and Certain High-Cost Installment Loans—Revocation Rule." Accessed Nov. 23, 2020.

  12. Bloomberg Law. "CFPB Shelves Enforcement Changes After Staff Pushback." Accessed Nov. 23, 2020.

  13. Biden-Harris Transition. "Agency Review Teams." Accessed Nov. 23, 2020.