Consumer Protections Under Threat From Executive Order

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The Trump administration recently signaled it will move ahead with changes to U.S. financial regulations that could have a significant impact on American consumers, investors and borrowers.

President Donald J. Trump signed an executive order called “Core Principles for Regulating the U.S. Financial System,” which he unveiled after a meeting with American business leaders including JPMorgan Chase CEO Jamie Dimon, IBM CEO Ginni Rometty and Chairman and CEO of General Motors Mary Barra.

Although not specifically named in the executive order, the president has said it will include a review of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a law passed in 2010 to help the nation recover from the 2007-2008 financial crisis and the subsequent Great Recession. Trump wants the review on his desk in 120 days.

Targeting Dodd-Frank

Last week, when announcing a planned cut in regulations for small businesses, Trump told a gathering of small-business leaders, “Dodd-Frank is a disaster. We’re going to be doing a big number on Dodd-Frank.”On Friday, he went on to say, “We expect to be cutting a lot out of Dodd-Frank, because, frankly, I have so many people, friends of mine that have nice businesses that can’t borrow money, they just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd-Frank.”

The new executive order is just one of a string of actions taken by both the new president and the Republican-controlled House and Senate in recent weeks to reduce oversight and regulation of the financial services industry and businesses. In addition, Republicans in the Senate have proposed the “Financial CHOICE Act” to roll back many of the financial services oversight rules put in place during President Barack Obama’s administration as it worked to help the economy recover from the financial crisis.

Here’s are some of the key consumer protections that are likely targets for major change:

Consumer Financial Protection Bureau

In the administration’s crosshairs is the Consumer Financial Protection Bureau (CFPB), established by the Dodd-Frank Act in July 2011. According to its website, the bureau’s mission is:

[T]o make consumer financial markets work for consumers, responsible providers, and the economy as a whole. We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information, steps, and tools that they need to make smart financial decisions.

Among other initiatives, the bureau has fought to rein in payday lenders from taking advantage of borrowers, helped combat discrimination in lending and determine when credit card companies are misleading consumers about their reward programs.

Now under consideration are these moves to defang the CFPB:

  • Potential elimination of new federal CFPB rules on prepaid cards: Last week a group of Republican lawmakers introduced a joint resolution to “disapprove” of a new rule that would have required greater accountability from issuers of prepaid cards. The rule, designed to ensure that users of prepaid cards were provided with most of the same protections as users of traditional bank-issued debit cards (including disclosure of fees and a limit on consumer liability when cards are lost or stolen), was slated to take effect this fall but would not if the resolution passes.
  • Structure of the CFPB (and likely its very survival): Last year, House Financial Services Committee Chairman Jeb Hensarling said in a speech that the CFPB needs a major overhaul and a different leadership structure. “The CFPB may arguably be the single most powerful and least accountable federal agency in the history of our nation,” he said. “The CFPB director — one man — has the unbridled and unprecedented power to unilaterally declare virtually any mortgage, credit card or bank account ‘unfair’ or ‘abusive’ at which point Americans can’t have it – even if they need it, want it, understand it and can afford it.” Courts have also weighed in on the structure of the CFPB and its constitutionality.

White House press secretary Sean Spicer also declined to rule out elimination of the CFPB when asked a direct question about it last week. “I think we’ll have further updates on that (whether or not the CFPB will stay in place),” he said. “That’s an area that we need to work with Congress on.”

Bank oversight

The new administration’s drive to eliminate “red tape” affecting consumers, small businesses and corporations puts a couple of rules that beef up bank oversight at risk:

  • Mortgage lending: Loose lending practices contributed heavily to the subprime mortgage crisis and widespread foreclosures that sparked the financial crisis 10 years ago. If new rules introduced to help troubled borrowers are now treated the same way as the rules on prepaid cards (discussed above), and therefore end up not being implemented, homeowners may face fewer options to avoid foreclosure. One example of such a rule was introduced by the CFPB last year. It aims to help borrowers who apply for “loss mitigation” — a process whereby the holder of the loan (such as a bank or mortgage company) is supposed to work with a struggling borrower to try and find alternatives to foreclosure. The updated rules are designed to ensure that borrowers get that help — and if the rules aren’t implemented as planned, borrowers may not get it.
  • Potential elimination of the Volcker Rule: This provision of Dodd-Frank prevents banks from making what could be perceived as risky investments with bank money. Critics of the rule have suggested it stifles “entrepreneurship” by banks, while supporters maintain that it ensures banks don’t make unwise investments and then ask the taxpayers to bail them out.

More to come

You can be sure that there are many more changes ahead, particularly as Trump receives and acts on the report he has requested in his recent executive order. The order lays out the following “core principles” for financial services reform:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within federal financial regulatory agencies and rationalize the federal financial regulatory framework.

Your thoughts?

How do you think the new president’s plans to roll back financial regulations will affect the economy and your financial circumstances? Share your thoughts in comments below or on our Facebook page.

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