In a report released late yesterday (June 12), the Treasury Department officially recommended that the Consumer Financial Protection Bureau should be substantially stripped of its powers.
The report accuses the CFPB of regulatory overreach and notes that its director should serve at the will of the president, just like the director of every other executive branch agency.
“The CFPB was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses,” the report said. “The CFPB’s approach to rule making and enforcement has hindered consumer access to credit, limited innovation and imposed unduly high compliance burdens, particularly on small institutions.”
The report also pushes for exemptions from the Volcker Rule, which bans banks from trading for their own gain, and for regulatory relief for community banks when it comes to things like stress tests.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” said Steven Mnuchin, the Treasury secretary.
The recommendations were written with an eye toward easing regulations imposed on community banks and all but the largest credit unions after the financial crisis.
The report follows a request by the president in February that the Treasury department begin to prepare a major restructuring of various provisions of the Dodd-Frank law. Secretary Steve Mnuchin was specifically instructed to rethink the law in a way as to make it more in-step with the administration’s goals.
While the Trump administration cannot roll back the law on its own, the executive branch has wide discretion in how it is enforced — meaning many of the changes could be implemented without legislative approval or official changes to the statute as written.
Congress is also working to further loosen financial regulations — about a week before the Treasury department report hit the wires, the House passed the Financial Choice Act with the support of only Republicans. That bill is widely expected to die a quiet death of starvation in the Senate, though Senators are working on their own financial reform. However, the more closely divided upper chamber of Congress is considered unlikely to pass a bill — as Republicans do not have the votes to go it alone, and Democrats are considered unlikely as a whole to consider any major repeal or resection of Dodd-Frank.
The report did not address reform of the government-controlled mortgage finance giants Fannie Mae and Freddie Mac, which have been in a government conservatorship for nearly nine years, though it did take up the topic of post-crisis regulations on the mortgage market — particularly when it comes to the cost of lending.
The report said “increased oversight and regulation has led to an increase in compliance costs,” which limits the ability of mortgage firms to spend more money “on developing more effective mortgage servicing platforms and technology.”
The Treasury recommended a slowdown in new regulations for mortgage servicers.
Progressive groups condemned the recommendations as likely to put the economy in the same type of jeopardy that ultimate led to the Great Recession.
“The financial crisis had devastating costs for families and communities, and everyday abuses in financial markets cost people tens of billions of dollars a year,” said Lisa Donner, executive director of Americans for Financial Reform. “Financial reform has made the system safer, and the CFPB is returning billions of dollars to consumers facing industry tricks and traps.”
She added, “We need more effective regulation and enforcement, not rollbacks driven by Wall Street and predatory lenders.”