This month The Trump administration, through acting CFPB Director Mick Mulvaney, announced sizeable restrictions to CFPB’s enforcement and day-to-day oversight of the financial industry’s fair lending practices. The move comes shortly after Mulvaney was installed as Acting Director following the departure of Richard Cordray. Speculation of the CFPB’s impending dismantlement under the Trump Administration has been swirling since the election and this is just one of the latest in a series of moves pertaining to the CFPB that lends some credence to that speculation. The decision will restrict the role of the Office of Fair Lending and Equal Opportunity – the fair lending enforcement arm of the CFPB – to one strictly focused on education and advocacy. The Office was also moved under the direct oversight of the Director’s Office, placing even more first-hand control with the Director. Additionally under Mulvaney’s direction, the bureau has dropped several payday loan cases and has announced plans to review current restrictions on payday lenders recently put in place by the CFPB under the Obama Administration. You may be more familiar with payday loans as a cash advance or paycheck loan. They are short term loans given at significantly higher interest rates. They are typically requested for immediate funds available in advance of a payroll check, with the principle and interest being paid shortly (typically after a paycheck is received).

What’s the CFPB’s role in fair lending enforcement?

Critics of the CFPB have long claimed that the bureau over-extends itself in terms of regulation and oversight. A prominent component of its oversight responsibilities focus on fair lending enforcement; ensuring that consumers are not discriminated against by lenders. This means, that you cannot be denied credit based on superficial terms such as race, sex, or religion. Have you ever heard the term “redlining”? It is a term used by the financial industry to describe lenders refusing credit based on residential demographics. Essentially, if you live in an area that the lender deems high-risk, they may reject your loan application. Of course this is completely illegal, but it hasn’t stopped lenders from trying. And this, along with other forms of discrimination, are exactly what the CFPB has been tasked with monitoring.

Looking for redlining and other lending discrimination

There are the few things that the CFPB looks at when a bank or lender is suspected of engaging in discriminating practices:

• Comparisons with other loan applications and originations in a minority area
• Where physical branches and offices are located
• Marketing scope and practices
• Current lending policies

Curbing predatory payday loans

In addition to ensuring that consumers have fair, equitable access to credit options, the CFPB has also played a considerable role in protecting consumers from being victimized by predatory loan practices. Most specifically, as they relate to payday loan or cash advance loan programs. The CFPB has aggressively gone after payday lenders in the past, including bringing lawsuits against those that the bureau alleged engaged in deceitful and predatory practices.

Why the changes to fair lending enforcement?

Since the bureau’s inception as part of Dodd-Frank, the Office of Fair Lending and Equal Opportunity has pursued lending discrimination, bringing several high-profile cases against lenders. Not only did it aggressively pursue discriminatory mortgage lenders, but other institutions as well, including automotive lenders. Herein lies the issue with most opponents of the bureau: Why, as measure created out of housing lending crisis and created to address oversight and enforcement for mortgage lending, intervening in auto lending enforcement? Well Dodd-Frank grants broad access for the CFPB, through the Office of Fair Lending and Equal Opportunity, to oversee and enforce fair lending practices. Under the Act, the Office of Fair Lending is tasked with:

• Providing fair lending enforcement under federal guidelines, including oversight for:
  • Equal Credit Opportunity Act (ECOA)
  • Home Mortgage Disclosure Act (HMDA)
• Coordinating fair lending enforcement efforts with federal and state regulators
• Working with private sector fair lending advocates

Essentially, this means that the CFPB has had a say (one with the authority to force compliance) in any form of consumer credit offering… but moves under the current administration are setting the stage for a drastically different CFPB.

What roll-backs at the CFPB mean for consumers

So how does the changing role of the CFPB affect you and other credit consumers? First, this does not mean the end of fair lending enforcement and consumer credit protection. The CFPB’s fair lending oversight responsibilities were concurrent with the regulation and oversight duties of other organizations. However, the relative autonomy in exercising its enforcement policies made the CFPB an aggressive and effective regulator in the financial lending industry. Critics of the announcement worry that the move will greatly reduce the CFPB’s efficiency in addressing lending discrimination.

There are also concerns raised over the pull-back by Mulvaney on the CFPB’s efforts to try payday lending discrimination cases. Under the Acting Director, the bureau has dropped several payday lending lawsuits, including one lawsuit file just a year ago, involving four different lending firms. Additionally, Mulvaney has announced plans for a review (and potential roll-back) on legislation the CFPB put in place this past October regarding payday lending regulation. The new regulations, which were set to take effect in January, would address lenders properly vetting loan applicants as well as set restrictions on certain lending practices. Unfortunately, this puts even more oneness on you as a credit consumer to be diligent when consider loans or other financing options. It’s now even more important to make sure that you completely understand all details of a potential loan, including repayment structure and fees and penalties. While there are other agencies tasked with reviewing and regulating fair lending enforcement, the recent announcement most likely means a decrease in efficiency and effectiveness in addressing discrimination cases as they will now be encompassing roles and responsibilities previously occupied by the CFPB.

Resources

Do you have questions about current loan programs in which you are enrolled or would like further information on how the CFPB’s decision will affect future credit applications, contact our team to discuss. You can also get more info on lending and investment information from our blog page.

What exactly is the CFPB?

You’ve probably heard of the Consumer Financial Protection Bureau, but you may not be entirely sure what it actually does. For those of you who aren’t aware, the CFPB is governmental oversight and regulating body that monitors the financial industry and protects consumers from predatory or unethical behavior. The bureau was formed as a measure under the Dodd-Frank Act, the legislation that provided much of the framework for our financial regulation post-recession. Its strict oversight and regulation has definitely come as a benefit to consumers, but businesses and banks have railed against it for its perceived overreach and autonomy. Along with regulatory oversight, the CFPB also provides a platform to empower consumers. In addition to providing educational resources to consumers, the bureau has made complaint filing much more accessible improving transparency between consumers and the banking industry.

Uncertain future the bureau

Many Republican lawmakers have expressed criticism over the CFPB. Additionally, it has long been the subject of attack from the Trump Administration. Many experts believe that, with Cordray’s departure the bureau will almost certainly be placed in the cross-hairs as the administration considers a major financial regulation review.

“Do no harm”

The phrasing Dudley used in asking Congress to preserve key regulations underscores the imperatives of the measures he his trying to preserve. Many of the core financial regulations in place today are a direct result of the 2008 crisis – which was itself a direct result of lack of sufficient regulation and oversight. The effects of the financial crisis were far-reaching and deep. We all experienced the negative effects and there are still people trying to recover what they’ve lost. It’s been a slow climb back to stable levels, but our economy is rebounding and investor activity is healthy; in fact, Wall Street indices have reached record highs over the last year. A return to normalcy could not have been achieved without the financial regulations put in place following the crash. While it seems that a review and potential overhaul of current measures is likely, eliminating the regulations that have helped us recover would not only be unwise, but could actually cause real harm to our economy. Fed experts also warn that financial deregulation can be a slippery slope, leading to massive unwinding of protective measures.

Key Financial Regulations

While Dudley did agree that some current regulation warrants adjustment, the key regulations maintaining a healthy financial industry must remain untouched. Among the key financial regulations, he listed standards upholding stronger capital, liquidity, and clearing must be kept in place.

Is 2008 far enough in our rear-view that we’ve already forgotten the same mistakes that brought the financial industry-and U.S. economy-to the brink of collapse? Evidently, it is for banks and policymakers. You have probably been hearing a lot of talk about impending “reviews” of current financial regulation measures; the very regulations put in place immediately following the aftermath of the 2008 collapse; the very measures that are meant to ensure that kind of thing doesn’t happen anymore. However, these calls for review signal a clear intention for some of a desire for wide-scale financial deregulation.

The Push for Financial Deregulation

Financial institutions have claimed that regulation measures have been retaliatory and have largely resulted in stifling growth and ability to offer competitive services and prices. With the introduction of the Trump Administration, financial stocks soared on optimism of a businessman in the White House. The president and other policymakers have repeatedly voice dissatisfaction with current regulatory measures. Notably, the Dodd-Frank law, which provides much of the overarching regulation for banking and finance, has been seen as headed for the chopping block. Reuters reports that in June, House Republicans voted to replace Dodd-Frank.

In a World Without Financial Regulation

The risks of widespread financial deregulation are great. The fallout of 2007-2009 were universal, and effectively ended the popular “too big to fail” concept. Entire companies were brought down, not to mention the homes and savings of thousands of people and families. You probably know someone who experienced financial devastation. Dodd-Frank and other regulatory measures were put in place to ensure that devastation of the magnitude never occur again. While a review of some measures may be warranted, massive financial deregulation is not. In fact, banking experts are warning that a move like that could have dire consequences. Vice Federal Reserve Chair, Stanley Fischer, recently stated that the decision to roll back key elements of Dodd-Frank were extremely short-sighted. He warned that a reversal could be taking us in a very dangerous direction. Regardless of political preference, nobody wants a return to the dark days of 2008. Any “reviews” of existing regulations should be met with apprehension and should be given full deliberation.

Resources

You can read more about the Fed’s concern over deregulation here. Curious about what potential rollbacks could mean for your retirement savings or investments? Give us a call.

However, did you know that part of Dodd-Frank requires banks to submit a financial doomsday plan outlining how they will dissolve in the event of a catastrophic collapse?

Essentially, they are “living wills” that show what and how assets would be liquidated in a bankruptcy. The big catch is, these plans cannot rely on taxpayer bailouts. Banks must submit practical, realistic plans that leave no room for optimism.

So who’s checking this financial doomsday plan?

Banks must submit their “wills” to The Federal Reserve and the Federal Deposit Insurance Corporation for their review and approval. These are rigid reviews that show no leniency towards a bank. And its not just a an informal thing that banks submit as a symbolic gesture. These plans play a significant role in a bank’s continued operational existence. Dodd-Frank allows regulators to take extensive measures to make sure that a bank’s dissolution plan is credible.

Which banks were required to submit a financial doomsday plan this year?

Most of the nations top big banks were required to submit plans, including:

• Bank of America
• Bank of New York Mellon
• Citigroup
• Goldman Sachs
• JP Morgan
• Morgan Stanley
• State Street Corp
• Wells Fargo

American Insurance Group and Prudential Financial were given one-year extensions to submit a workable plan.

Investor Resources

You can read each bank’s financial doomsday plan on the Fed’s website. For more legal and financial news, check out our blog. Contact our investment-loss recovery attorneys if you believe you have been the victim of stock fraud or broker misconduct.

What’s Helping Stock Market Growth

Of the two stock market indices that are performing highest under the ‘Trump trade’, financials and industrials, this is due to the two consistently repeated points of rhetoric that Trump has been using since his election:

• Widespread banking deregulation
• Increased infrastructure spending

With his promise of deregulating U.S. banking practices, financial stocks are soaring on optimism for lax regulation. President Trump has made it clear that a major revisitation of Dodd-Frank is necessary. Established in 2010, Dodd-Frank is the main legislative force for banking regulation. President Trump has also consistently referred to his plan to increase infrastructure spending, to the boon of industrial stocks post-election. The Trump Administration has made clear it’s intent to promote and encourage U.S. manufacturing, hoping to kick-start another industrial boom.

Uncertain Future for Stock Market?

Despite the dominating conditions, experts remain skeptical. There are several factors that hinder future stock market growth or cause a reversal:

• Yet-to-be-seen economic plan
• Global economic factors

Experts have expressed concern that despite the promises and optimism, this has yet to translate to an actual economic plan. U.S. markets are also tied in heavily with the global economy. It is unclear whether a separation from that may affect the stock market negatively.

Last week, President Trump ordered a review of major banking regulations put in place following the 2008 financial crisis, largely comprising Dodd-Frank regulations. President Trump has made clear that rollbacks are a main objective for these reviews. Though the executive order only calls for a review, the Trump administration aims to make major cuts to banking regulations, largely affecting Dodd-Frank’s enforcement measures: Volcker Rule and the Consumer Financial Protection Bureau (CFPB). Here is an overview of the two main components of the Dodd-Frank banking regulations and what it means if they are cut:

The Volcker Rule

A big part of Dodd-Frank, the Volcker Rule raises capital requirements for banks and limits trading abilities. Banks are restricted from certain investment activities using their own accounts and also from retaining control over covered funds. The Volcker Rule acts to prevent speculative trading. If cut, big banks could be free to make unstable investment decisions.

Consumer Financial Protection Bureau

Another major component of Dodd-Frank, the CFPB was established by congress as a means of hands-on banking regulation and enforcement. The CFPB acts to protect consumers from aggressive and predatory investment banking and trading practices. In addition to taking legal action against unfair and deceptive practices, the CFPB also serves as an educational resources for consumers and investors. If cut, banking regulation could once again become largely decentralized and unable to accurately oversee banking practices.

Effects

Bankers and lenders laud President Trump’s decision to review current financial regulation under Dodd-Frank. Wall Street saw a noticeable bump in banking stock prices following Friday’s announcement. Despite lender and broker-dealer optimism, many consumers and regulators worry that loosened regulations will lead to a financial relapse and market crash.

Educational Resources

• See this report from Reuters for more info on President Trumps order for regulatory review
• Find out more about the CFPB by visiting their website
• Get more consumer news and tips by checking out our past blogs