R.I.P. Consumer Financial Protection Bureau
It may be time to write the epitaph for the headstone to the short-lived, badly-needed, inconvenient-for-some consumer financial protection bureau.
During Barack Obama’s presidency, Massachusetts Senator Elizabeth Warren created and implemented her brainchild, the Consumer Financial Protection Bureau. Benefitting from guaranteed funding that Congress could not disrupt, since otherwise they surely would have, the CFPB’s single-director leadership structure furthered Senator Warren’s goal of insulating the agency from corruption and keeping it out of Congress’s control. Now that Trump is in place, dismantling the CFPB is to be his first major financial regulatory act of destruction.
The CFPB’s mission is to guard against the unfair treatment of American consumers who otherwise likely would find themselves victims of Wall Street’s presumed predatory conduct in consumer transactions. Whether or not the implied distrust is warranted, as The Investment Advocates believes it to be along with many others, it is undoubtedly true that consumers need protection to maintain their confidence to invest. Without regulations governing suspect but “novel” financial products and financial arrangements, failures of certain of those products and arrangements in 2007 brought about the realization that inadequate regulations were then in place to prevent the harm. The markets lost confidence and we entered the financial crisis of 2007-2015. By eliminating essential regulation now, such abuses become likely if not inevitable. Accordingly, we are likely entering another age of egregious abuses that we ultimately expect will lead to a renewed lack of investor confidence, major problems for investors, and ultimately domestic and global markets. Wash, rinse, repeat.
In recent days, President Trump has moved quickly to place his hand-picked outside director, Mick Mulvaney. Such an appointment has the potential to supplant the natural flow of leadership within the agency, yet again destroying, through passive disruption, an essential regulatory gatekeeper put in place as part of our post-Recession cleanup. Trump’s appointee is an avowed opponent of the CFPB and a steward of the financial industry. Trump put the fox in charge of the henhouse, inviting another financial bloodbath. Trump seems to be taking a page from China. While the Dalai Lama traditionally selects, finds, and appoints his reincarnated self to assume the next generation of responsibility, that process competes with China’s desired narrative. Accordingly, China has found its own appointee who is picked to compete with the Dalai Lama‘s chosen one.
However, in a bold move to outmaneuver Trump and temporarily save the Bureau, Richard Cordray announced his resignation as Director early while concurrently appointing his own replacement, Leandra English. Dodd-Frank prescribes that in the absence of a leader, the assistant director takes the position as acting director, giving English authority to temporarily lead the CFPB due to Cordray’s early resignation. Mulvaney nevertheless showed up to the CFPB the Monday morning following Cordray’s departure, bearing doughnuts no less.
Out of the brewing dispute for control, English filed for a temporary restraining order preventing Mulvaney from leading the CFPB. She lost in her attempt to regain control yesterday when US District Court in Washington, DC, Judge Timothy Kelly ruled that he will not issue an emergency order blocking Trump from installing Mulvaney in the post. Judge Kelly, a Trump appointee, found that English did not show enough likelihood of prevailing in the ultimate case to claim the leadership of the CFPB. Whether English will go on to pursue her case on appeal is yet to be seen. It seems fairly clear that with Mulvaney, a financial industry insider, at the helm of the very agency created to prevent abuses by the financial services industry, a draft epitaph may be appropriate.
“Here lies the agency born at the pinnacle of progressive aspirations for egalitarianism and effective regulation of the financial industry. Created with the purpose of mopping up the cesspool of corruption benefiting only those few with connections, yet cruelly and abruptly cut short in life, the CFPB was taken from us by misguided men who are beholden to corrupt leaders with the spin and resources to get away with it. The world will mourn your loss, our sweet CFPB. It just doesn’t know it yet.”