The Financial CHOICE Act may turn out to be the knight that slays the Consumer Financial Protection Bureau (CFPB), but that knight’s next battle features a formidable dragon. Under the act’s proposals, the CFPB’s regulatory and enforcement capabilities could be severely impacted—making regulatory compliance much less of a burden for providers of consumer financial products and services.
CHOICE Act Would Gut CFPB
The CFPB enforces federal consumer financial protection laws, essentially acting as a watchdog to ensure creditors, lenders and other providers of consumer financial products and services such as loans, policies, etc. are treating consumers fairly.
The CHOICE Act (H.R. 10) would establish the CFPB as an independent agency outside the Fed, and will give the president the right to appoint the CFPB’s director. Rather than the CFPB being given a portion of the Federal Reserve’s budget, the CHOICE Act would establish funding through congressional appropriations, giving Congress control over its budget and funding and forcing the CFPB to bring regulatory actions in a court of law. The act would strip the CFPB’s authority as a supervisory agency and also limit the CFPB’s authority over enforcement actions involving unfair, deceptive and abusive acts and practices (UDAAP).
The CHOICE Act would repeal the CFPB’s indirect auto-lending guidance as well as repeal its authority to ban products or services it considers “abusive,” allow a five-year waiver from the CFPB’s short-term, small dollar credit regulations, and repeal the CFPB’s authority to prohibit arbitration clauses in financial services contracts, among other changes, according to the Wall Street Journal’s summary. However, Congress did reportedly repeal the CFPB’s rule that banned arbitration clauses in financial services contracts on Oct. 24, so those are now fair game again.
The act would also prohibit the publication of the CFPB’s Consumer Complaints Database to the public, according to KPMG, which points out that a revocation of the database’s publication may lower transparency, result in fewer complaint resolutions and present a missed opportunity to analyze this data from a policy-making perspective.
Passage Is a Rocky Road
For organizations and entities that are regulated by the CFPB, managing their regulatory risk remains ambiguous. Parties facing a CFPB enforcement action may get new rights if the act is passed. However, whether the act will pass in the Senate remains a question, with experts predicting that the entire act is unlikely to be passed. For example, House Financial Services Committee ranking member Maxine Waters (D-CA) said, “The bill is also dead on arrival in the Senate, and has no chance of becoming law.”
However, parts of the CHOICE Act may be passed and if they are, it could have major repercussions for the banking industry—including a much softer regulatory landscape.
Managing The Practical Impact on Providers of Consumer Financial Products and Services
Financial services attorney Chrys D. Lemon discusses what changes to the CFPB are possible in “How the Financial CHOICE Act Would Roll Back the Powers of the CFPB and Ease Offerings of Consumer Financial Products and Services,” a webinar with Eli Financial. Chrys discusses whether it would make it easier for a financial institution or service provider to obtain compliance advice from the CFPB and what the practical impact of all of these changes would be on providers of consumer financial products and services.