What a World Without the CFPB Would Mean for Your Credit Union

By Henry Meier, Esq., The Law Office of Henry Meier

Over the weekend, dramatic steps were taken indicating the real possibility that the Trump Administration plans to swiftly eliminate, or at the very least, “defang” the Bureau. New acting director Russell Vought not only announced that the Bureau would be shut down until March 14th but pointedly notified the Federal Reserve that it would not be taking the next draw of unappropriated funding. The CFPB is funded through the Federal Reserve, a mechanism that survived a challenge to its constitutionality before the Supreme Court only last term.

I’ve said it before, and I’ll say it again: as much as many people within the industry would take pleasure from the demise of the CFPB, it is an outcome that comes with its own set of unique risks.

Most importantly, unless Congress couples the elimination of the Bureau with a wholesale repeal of much of the Dodd-Frank Act, financial institutions would be subject to a legal framework without guidance as to how to comply with it. This would be particularly troublesome in the context of mortgage lending; after all, it is the CFPB that was tasked with defining, through regulation, what precisely a Qualified Mortgage is. What happens to those regulations if the Bureau simply disappears?

Furthermore, the CFPB is more than simply the enforcer of most federal consumer protection laws; it is also the primary interpreter of these requirements. These laws aren’t going to go away just because the CFPB does. A world without the CFPB may actually encourage more private litigation in the absence of a regulator providing guidance as to how these statutes are to be interpreted.

Even if Congress works with the Trump Administration to wipe out every vestige of the CFPB, there are still plenty of state attorneys general and regulators who will aggressively move to fill in the gaps that exist in its absence. In other words, the consequence of doing away with the Bureau may ultimately be more confusion and more litigation without a correspondingly dramatic decrease in regulatory mandates. Imagine 50 states with 50 definitions of what constitutes a Qualified Mortgage with their own set of detailed mandates for consumers who claim their credit reports are inaccurate.

Last but not least, let's keep in mind that the NCUA, like the CFPB, is an independent agency created by Congress whose funding is not dependent on Congressional appropriations. If the Bureau can be eliminated, the NCUA is susceptible to the same fate.

It’s time for Congress to reassert itself and for everyone to take a deep breath and start having constructive discussions about needed reforms to our regulatory structure. The desire to hurry up and break things might work for a handful of Silicon Valley startups and even have a certain facial appeal to people fed up with regulatory mandates. However, it is no way to implement a legal framework that provides both consumers and businesses clear guidance as to what is and is not permissible.