Consumer protections for users of credit cards and other financial services might be rolled back as a result of Tuesday’s election outcome, while the federal government’s consumer watchdog agency could have its power slashed.
“Congress has been looking to cut the authority of the Consumer Financial Protection Bureau,” said Edgar Dworsky, founder of ConsumerWorld.org and a former Massachusetts assistant attorney general in consumer protection. “Now that you have a Republican House, Senate and president-elect, it shouldn’t surprise anybody that they would start moving on that.”
While Donald Trump won the presidency, Republicans kept majorities in the House and Senate, giving the party a strong hand to push its agenda following the Jan. 20 inauguration.
Consumer watchdog leashed?
Created in 2011 by the Dodd-Frank Act, the U.S. Consumer Financial Protection Bureau has ordered banks, payday lenders and other financial services to refund about $11.7 billion to consumers for unfair or abusive practices. The Republican platform under Trump calls for repeal of Dodd-Frank on the basis that it constricts lending and job creation.
Separately, the Trump campaign has indicated support for a Republican measure in the House that would restrict the agency’s powers. The Financial CHOICE Act, proposed by House Financial Services Committee Chairman Jeb Hensarling, would replace the bureau’s single director with a five-member bipartisan commission. The bill would also modify the bureau’s consumer protection mission, require cost-benefit analysis of its rules and erase its power to ban practices it deems abusive. It also gives states and Native American tribes the right to permanently opt out of any payday lending regulation. The bill limits the commission to no more than three members of one political party. If passed, all five members would be appointed by Trump, subject to Senate confirmation, and three could be Republicans.
The Texas congressman and Trump met in June and discussed Hensarling’s bill.
The Consumer Bankers Association congratulated Trump in a statement Wednesday and called for changes in the leadership of the CFPB. It cited as a priority issue “a five person, bipartisan commission at the Consumer Financial Protection Bureau,” echoing Hensarling’s proposal.
Consumer advocates say the bill would gut the bureau’s consumer protection powers. However, it is not clear how wrangling over the agency will play out. Democrats will have 48 seats in the Senate, a strong enough minority to block legislation that the party opposes – which includes the bill to restructure the CFPB.
Moreover, Trump has been critical of Wall Street banks, going so far as to advocate their breakup, and has shown he is willing to battle with mainstream Republicans in Congress.
“Trump has said some harsh things about the big banks,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. Given that many Trump supporters are the working-class voters who benefit from CFPB rules and refunds, “It will be interesting to see where the battle lines are drawn,” Rheingold said.
Pending rules clouded
Trump has called for a moratorium on new regulations and a review of rules now in place, putting specific consumer financial protections in doubt. The purpose of the review is to free businesses from unnecessary restrictions so they can create jobs, he has said. But consumer advocates fear that restrictions on anti-consumer practices will be among those swept up in the deregulation.
The CFPB has proposed extensive new rules on debt collectors, payday loans and mandatory arbitration, the practice of requiring customers to give up their right to sue the company in court. The proposed rules are not finalized, making them particularly vulnerable, consumer advocates said. The new administration could block the implementation of the rules as part of its moratorium.
Final rules already in place, such as protections for prepaid debit card users that the CFPB finalized in October, would be harder to undo. However, Trump could undermine the rules by picking an agency director who does not move to enforce past rules, or to defend them from court challenges.
Richard Cordray: gone?
In October the U.S. District Court for the District of Columbia ruled that the CFPB director can be fired by the president at will. Previously the director – President Obama’s appointee Richard Cordray – could be removed only for cause.
The ruling “is going to get appealed,” Rheingold said. “But if in fact Rich Cordray is an at-will employee of the new president, all bets are off.”
Consumer advocates said if the new administration is hostile to consumer protection, battles to protect consumers would move to the courts. “If the CFPB is hamstrung or even imperiled, that doesn’t mean that consumers should go unprotected,” Public Justice Executive Director F. Paul Bland Jr. said in a statement about the election.
Consumer advocates are used to periods “where you’re not fighting for new rules and legislation, you’re just fighting to keep the existing ones on the books,” Dworsky said.
Interest rates affected
Slower-than-expected rises in interest rates could be a side effect of the election for consumers, especially those who carry credit card balances, economists said. Heightened economic uncertainty after the surprise election result could delay rate-tightening moves.
“The market response to the election was pretty violent at first,” said TD Economics economist Paul Feltmate, referring to gyrations in global stock and bond markets. Rate setters at the Federal Reserve might pass up an expected interest rate hike in December to see how the new administration’s policies on trade, taxes and immigration take shape in 2017.
“We’re in a wait-and-see mode at this point – I imagine Fed officials are too,” Feltmate said. Interest rate futures show that expectations that the Federal Reserve will raise rates at its December meeting, previously put at about 80 percent, have begun to slip as traders absorb the election results.
Earlier coverage: How Trump or Clinton would affect credit card lending