Consumer Watchdog Faces Attack by House Republicans

Consumer Watchdog Faces Attack by House Republicans

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The proposal was part of a broader set of policies that Republicans have been devising to roll back the Wall Street regulations known as the Dodd-Frank Act, which emerged from the 2008 financial crisis. While Mr. Trump also supports dismantling the law, Republicans would probably be unable to accomplish a sweeping repeal of Dodd-Frank without the support of some Democrats.

That will be difficult to get. Senator Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, blasted Mr. Hensarling’s plan on Thursday and accused Republicans of plotting to turn an effective consumer watchdog into a “toy poodle.”

“It took less than three weeks for House Republicans to show their hand on how they will renege on candidate Trump’s campaign promises to hold Wall Street accountable and help working Americans,” Mr. Brown said after reviewing the memo.

Mr. Trump has been relatively muted on the future of the Consumer Financial Protection Bureau, which is the brainchild of one of his most vocal Democratic critics, Senator Elizabeth Warren of Massachusetts. But advisers to Mr. Trump have signaled that the administration is prepared to gut the agency.

Steven Mnuchin, Mr. Trump’s nominee to head the Treasury Department, said during his confirmation hearing that the consumer protection bureau, created by Dodd-Frank, should cease to be funded by the Federal Reserve and should instead be funded through Congress, a move that could curb its independence. Representative Mick Mulvaney, Republican of South Carolina, who is waiting to be confirmed as the White House’s budget director, has referred to the bureau as a “sad, sick joke.”

And Sean Spicer, White House spokesman, said Mr. Trump had not yet decided if he would try to oust the bureau’s director, Richard Cordray, before Mr. Cordray’s term ends in 2018.

“You bet I’m worried,” Ms. Warren said in an interview. “I’m worried for the millions of working families who have gotten some help over the last five years from a strong and independent consumer agency.”

She added: “I’m worried that Trump wants to take the life out from that.”

The bureau has returned billions of dollars to bilked consumers since it was created in 2011. Its regulators exposed the scandal of Wells Fargo employees creating fake accounts.

For Mr. Trump, hobbling the bureau would have the added sweetness of outraging Ms. Warren, a political nemesis whom he derided regularly on Twitter during his campaign as Pocahontas, referring to a controversy about her Native American heritage.

The Consumer Finance Protection Bureau was the brainchild of Senator Elizabeth Warren, Democrat of Massachusetts.

Credit
Shawn Thew/European Pressphoto Agency

That revenge would not be that easy to exact. While Mr. Trump is fond of bellowing, “You’re fired,” sacking Mr. Cordray could be complicated.

“In my view, attempts to fire him would be not only illegal but unwise politically,” said Rohit Chopra, a fellow at the Consumer Federation of America and a former official of the bureau. “The director of the agency is not intended to be a political pawn of the president.”

Changes to the bureau generally need to come from Congress, and Republican lawmakers have been hoping to tear it down since its inception. Mr. Hensarling argued in a Wall Street Journal editorial this week that it should be abolished.

“The C.F.P.B. has eroded freedom, trampled due process and killed jobs,” Mr. Hensarling wrote. “It must go.”

Closing it completely would almost certainly require some bipartisan support, but some Democrats have demonstrated a willingness to reconceive the bureau. Senator Tom Carper, Democrat of Delaware, where a number of major credit card companies have their headquarters, said this week that he would like to have hearings to address its future and that he would be open to new leadership, the website Morning Consult reported.

“I’ve been interested in exploring the idea of a commission-like approach,” Mr. Carper said.

Detractors of the bureau deride it for overreach, contending that it has stymied lending, harming the housing market and stalling car sales. They also say that its structure is unconstitutional, a position partly affirmed in October by a federal appeals court, and that Mr. Cordray has amassed too much power.

The bureau’s backers point to the nearly $12 billion in financial relief that it has provided to about 27 million American consumers as a result of its work. Big fines recently levied against Wells Fargo and the Navy Federal Credit Union have buttressed their argument that regulation is good for the economy.

Just last week, the bureau fined MasterCard and RushCard $13 million for glitches that denied holders of prepaid debit cards access to their cash.

“People know that financial companies were running amok, and that kind of behavior takes money out of people’s pockets and was the cause of a financial crisis,” said Lisa Donner, executive director of Americans for Financial Reform. “President Trump campaigned on standing up to Wall Street, and I don’t think his voters are looking for putting Goldman Sachs even more in charge.”

The federal courts could make it easier for the president to remove Mr. Cordray before his term expires. A three-judge panel of the United States Court of Appeals for the District of Columbia Circuit ruled last October that the president should have the authority to dismiss the consumer bureau’s director at will. If the full Court of Appeals agrees with that decision, Mr. Cordray could be fired immediately. The case could eventually head to the Supreme Court.

Ms. Warren said that agencies with single directors had existed without complaint, and that the push to dismantle a watchdog that protects vulnerable consumers went against the populist promises that swept Mr. Trump to the presidency. “Even the majority of Trump voters want to see it protected or expanded,” she said.

For the time being, Mr. Cordray and the bureau’s legal team are assessing the impact of Mr. Trump’s new executive orders and focusing on the daily business of enforcement.

Mr. Cordray would not discuss potential changes to the bureau’s leadership structure, but he defended its importance to the economy, given the coming wave of deregulation.

“This is hard and immensely important work, and we have made real change in the way financial institutions treat consumers,” Mr. Cordray said in an email before the Hensarling memo was released. “Companies know that they have to comply with the law and that there is somebody standing on the side of consumers to make sure they’re treated fairly.”

Mr. Cordray said the need for tough oversight had not abated even though the economy had stabilized.

“I believe we’ve made some great progress, but this is a big market, and there is a lot of work still left to do,” he said.

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