Since the election, several questions have emerged about the near future of the consumer financial services federal regulatory landscape. We've gathered some of the most common questions below. The FAQs, based on input received from members of our consumer financial services team, are intended to help provide basic information to help place the results into perspective.
Who will President Trump be listening to as he develops his consumer financial services policies?
It is difficult to predict how a Trump administration will proceed specifically with policy issues regarding consumer financial services. While these issues did not play a significant role in the debates or the campaign discussions, we know that the challenges facing the industry have been front and center for Congress.
In the short term, we expect a Trump administration to be influenced by the legislative efforts to date of the House Financial Services Committee (expected to be led by Chairman Jeb Hensarling) and Senate Banking Committee (expected to be led by Senator Mike Crapo).
Recently, the House Financial Services Committee approved legislation known as The Financial CHOICE Act of 2016, which addresses some of the most common issues discussed in the post-Dodd-Frank world. Here are a few of the legislation's highlights:
- Reorganize the CFPB into a five-member commission subject to congressional oversight and direct congressional appropriation with a dual mission of consumer protection and sponsorship of a competitive market for consumer financial services.
- End "Operation Choke Point."
- Repeal of the "Durbin Amendment" that capped debit card interchange fees.
- A new safe harbor under the "Qualified Mortgage" rule for loans kept on portfolio at the originating institution.
During the campaign, President-elect Trump said that he intends to repeal the Dodd-Frank Act. Does that mean that he will seek to repeal the entire Act, or should we expect him to take a more incremental approach? What are the possible changes?
Attempts to repeal parts or all of the Dodd-Frank Act are more likely since the election. Eventually, many key provisions may be repealed or modified, with an eye to reducing regulatory and compliance burdens on consumer financial service providers. However, the President-Elect has not released a specific outline or plan. Furthermore, to date, on the consumer protection front, much of the attention of Republican members of Congress has been paid to CFPB reforms (structure, funding, and operation), and less has been given to the specific laws enforced by the CFPB (apart from concerns about the CFPB's use of its authority to prohibit unfair, deceptive, or abusive acts or practices without fair notice). In addition, there were several recent rulemakings, completed and pending, that are important to many different segments of the consumer financial services industry that will merit individual attention.
What are the key dates that consumer financial services companies should be mindful of during this post-election transition?
There has been a focus on the D.C. Circuit's decision in CFPB v. PHH Corporation leading up to and after the election. In its decision, the appellate court ruled that the CFPB was "unconstitutionally structured" because too much of its power was vested in a single director who could be removed only by the president and only for cause. The court voided the for-cause provision, making the director removable by the president with or without cause. The CFPB has signaled publicly that it disagrees with the court's decision, but the PHH decision set in motion a series of deadlines that coincide with other notable dates, which together provide significant tea leaves regarding the CFPB's authority and future.
- October 11, 2016 – PHH Opinion
- November 25, 2016 – Petition for rehearing en banc by D.C. Circuit. The time for filing a petition for panel rehearing or rehearing may be extended "for good cause shown."
- January 9, 2017 (if no en banc petition) or 90 days from denial for rehearing by the D.C. Circuit – Petition for Certiorari to U.S. Supreme Court, which may be extended for good cause up to 60 days.
- January 3, 2017 – Convening date of the 115th Congress.
- January 6, 2017 – Joint Session of Congress to count Electoral Votes.
- January 20, 2017 – Inauguration Day.
- July 15, 2018 – End of CFPB Director Richard Cordray's 5-year term.
Between now and the above dates, it is important to watch the actions of the CFPB, the new Congress, and the new administration.
How might some of the proposed changes of the new Congress and administration immediately impact the consumer financial services industry?
Consumer financial services laws will remain complex and demanding, but we will likely enter an environment with more predictability and deliberate rulemaking, which could loosen credit markets and encourage innovation. There will be a lot of dialogue about what will happen and opportunities for input into the deliberative process and details.
- Community banks and credit unions are politically well positioned in the next Congress to benefit from recent legislative proposals, including The Financial CHOICE Act. In particular, these legislative proposals intend to reduce significantly the reporting burdens and other compliance costs associated with the Dodd-Frank Act in its current form.
- Large banks: Institutions that manage their capital with FSOC/SIFI capital requirements in mind may free up capital for new lending activity, including and especially to consumers and small businesses.
- Access to credit: CFPB changes may encourage a loosening of consumer credit access and a willingness for some financial institutions to expand their credit box for mortgage lending and auto lending.
- "FinTech" (financial service providers operating outside the traditional banking system) may have new opportunities to expand their business operations, but will continue to have to navigate the regulatory landscape shaped by years of consumer protection laws on the federal and state levels, including state lender and other licensing requirements.
- Financial counseling and literacy: The CFPB has promoted financial counseling and literacy significantly but, in doing so, has steered consumers toward in-house resources. There will likely be an increased need for nonprofit and innovative services to assist consumers with debt and credit issues.
- Market participants will have new opportunities to engage the CFPB on its current and past rulemakings to encourage changes that facilitate compliance and provide more effective regulatory cures and safe harbors.
How will the election impact the Federal Trade Commission's consumer protection agenda?
Unlike the CFPB, the FTC is an administrative agency with a five-member Commission. The FTC shares enforcement authority with the CFPB under several federal consumer financial protection laws and regulations, and has its own UDAP authority under Section 5 of the FTC Act. Only three of the five commissioners are currently serving, two Democrats and one Republican. Post-inauguration, the FTC will be able to conduct business, but the likely acting chair will be in the minority or in a tie (in the event of a resignation by current Chair Ramirez until the open Commission seats are filled by the Trump administration).
How will the election influence the consumer protection work of the federal banking agencies?
In the short term, we are likely going to see many hearings and proposals in Congress (and from the administration). But specific reforms are likely to be in the context of and influenced by the outcome of what comes of the Dodd-Frank Act and, when it comes to consumer protection, the CFPB. Banking institutions have seen enhanced scrutiny of the consumer-facing products and services as a result of the CFPB's existence, but the banking agencies have also increased their focus on issues such as credit card parties, mortgage foreclosures, and debt collection. The stage is set for movement on structural changes, and, in the meantime, individual financial institutions and their trade associations will assess their list of policy goals relative to rulemakings, including those the CFPB has already set in motion.
What type of substantive changes do you think consumer financial services companies ought to expect as a result of the election?
The CFPB put arbitration, small dollar, short-term lending, and debt collection at the top of the rulemaking list. With work still to be done on those rules, the industry will have continued opportunities to influence their outcomes. In some areas, there will be interest in more debate and talk on what those regulations should comprise, if anything, in light of the history in each of the areas, evolving court interpretations and enforcement examples (whether they be from the CFPB, FTC, state attorneys general, or private lawsuits). In the meantime, there can be an added benefit to industry self-regulatory efforts that promote consumer protection as an alternative to regulation and, in some instances, possibly supervision.
*Jennifer S. Talbert is a first-year associate and not yet admitted to practice law.