Why The Consumer Financial Protection Bureau May Die -- And Why You Should Care

Since the Consumer Financial Protection Bureau’s creation six years ago, some Republicans in Congress have wanted to kill it. They may get a clear shot next month.

The incoming presidential administration has pledged to undo many of the consumer protections enacted after the financial crisis, including weakening or dismantling CFPB, an agency tasked with watching out for American consumers in the market for financial products and services.

Will it happen? And if it does, should you care?

Short answer: They probably won’t erase it. (In the last century, the only agency to be completely eliminated is the Board of Tea Examiners, the federal government’s tea tasters. But a Republican majority, backed by a Republican president, could do some dangerous reshuffling, potentially weakening the CFPB and rendering it powerless to protect people.

But why does it matter? Because, for better or worse, the CFPB has taken the place of the Better Business Bureau as a credible clearinghouse for complaints, as a barometer for the financial services industry’s customer service, and as a bulwark against predatory lending practices. Take it away, and things could become much, much worse for American consumers.

What consumers think

American consumers have mixed feelings about the CFPB. Some have complained to the agency with no results.

Louis Peasley, a financial operations manager from Springfield, Va., shared a lengthy series of emails between himself and the agency ― requests that ultimately ended in failure.

“The Consumer Financial Protection Bureau is worthless,” he says.

But it’s not the agency’s fault. When you contact the CFPB for help, the other party may or may not respond. When they don’t, the agency “shrugs and moves on,” he says.

While the CFPB doesn’t actively advocate for people, it often acts as an intermediary between aggrieved consumers and companies. It has handled more than half a million cases since 2011 and claims a 97 percent response rate from companies. It has recovered $11.7 billion on behalf of American consumers since its inception.

Here are a few details on how its complaint process works.

Yet Americans who understand how the CFPB works believe the agency is necessary.

“The CFPB’s fundamental mission to protect consumers and the economy is an important one,” says Matt Oppenheimer, the CEO of Remitly, an international remittance company that helps expatriates send money across borders. “I don’t think we want to turn back the clock on protecting consumers from the abuses that were caused by the Great Recession.”

That’s a common sentiment ― that the CFPB could prevent another recession. It’s also a lot of pressure for a small agency with a sprawling mandate.

Is the CFPB really marked for death?

To understand what will happen to the agency, you first have to understand how the agency came to be.

You can find its official history on the CFPB site. But here’s what it won’t tell you: Years before the creation of the CFPB, there was talk of consolidating the consumer financial protection functions previously spread across multiple federal agencies. When the agency was created, the CFPB was tasked with administering important federal statutes, including the Truth in Lending Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Home Mortgage Disclosure Act, and the Electronic Fund Transfer Act ― a tall order.

What’s more, the Dodd-Frank Act also assigned it the job of helping inform consumers about responsible financial decision and protecting them from harmful practices and discrimination, among other things. It was a lot for the fledgling agency, and observers say the CFPB’s structure and financing made it particularly vulnerable to critics. As a result, says Braden Perry, a former enforcement attorney for a federal agency who currently works for the Kansas City law firm Kennyhertz Perry, “the CFPB is facing a serious reshaping.”

Peter Cohan, a lecturer at Babson College, says we shouldn’t expect a quick demise of the CFPB. “It is unlikely that eliminating the CFPB will happen in the near term,” he says.

The reason? Washington is likely to have other, more pressing legislative priorities. Also, the agency has a track record of protecting consumers that will make it hard to destroy.

“The CFPB is responsible for bringing to light the Wells Fargo fake account scandal ― which seemed to be a big plus for the agency, politically. It is hard to defend what Wells Fargo did and hard not to respect CFPB for bringing it to light.”

Cohan says there’s a 50/50 chance the agency will disappear. But others say they doubt the CFPB will vanish.

Andrew Sandler, chairman of the Washington, D.C., law firm BuckleySandler, has been practicing law in the nation’s capital for more than three decades. “The one constant,” he says, “ is that agencies never disappear. They just sometimes get reshuffled.”

He predicts that when the Trump administration gets around to the CFPB ― and that may take quite some time ― we should expect structural and substantive changes.

“These will likely include leadership by commission or a more accountable director and a de-emphasis on regulation through creative enforcement,” he says. “However, the basic premise of vigorous consumer protection in the sale and servicing of financial products through a federal agency solely focused on that mission is likely here to stay.”

What it means to you

Bottom line? You’re at risk of losing some “critical” protections, according to Ken Goodgames, the CEO of Transformance, a financial literacy nonprofit in Dallas.

Specifically, lending institutions might no longer be required to furnish quarterly reports on their activities. Some of the agency’s enforcement actions ― particularly those against debt collection companies ― could all but cease. Also, regulations designed to keep predatory payday lenders in check could be drastically eased.

In addition, mortgage underwriters might no longer be required to disclose truth-in-lending principles, and prepaid debit cards would almost certainly have less regulatory oversight.

That might not be such a bad thing, according to Craig Nazzaro, a regulatory compliance expert in the Atlanta office of the law firm Baker Donelson. The CFPB, he says, was overly aggressive with enforcement, and realigning it will ensure its long-term survival.

“This will not take the teeth out of the agency, but rather provide for a more secure future for the agency while allowing for a more even regulatory environment,” he says. “The CFPB can then pursue the bad actors in that space.”

If and when that happens, it means you’ll have to get smart about your financial decisions and be on the lookout for scams. In the not-too-distant future, the watchdogs at the CFPB may be on a much tighter leash.

Christopher Elliott specializes in solving intractable consumer problems. Contact him with your questions on his advocacy website. You can also follow him on Twitter, Facebook and Google or sign up for his newsletter.