One block west of the White House, the Trump administration is currently engaged in a battle with federal officials resisting a Republican attempt to undermine the Consumer Financial Protection Bureau.
Meanwhile, a few blocks West on Pennsylvania avenue, the President is getting a helping hand from Democrats on Capitol Hill.
Though the temporary appointment of Mick Mulvaney signals doom for the CFPB (the top White House economic aide has described the watchdog agency as “a sick, sad joke”), legislation, with liberal support, could do much more lasting damage than a single presidential appointee.
One of those bills would bar the CFPB from even examining financial institutions with less than $50 billion in assets. If signed into law, the proposal would exempt 65 of the country’s hundred largest banks–and their aggregate $1.4 trillion in wealth–from any agency scrutiny whatsoever.
The legislation was cosponsored by Rep. William Lacy Clay (D-Mo.). When it was advanced in October by the House Financial Services Committee, every Republican supported the measure, alongside four of Clay’s colleagues–Reps. Emanuel Cleaver (D-Mo.), Kyrsten Sinema (D-Ariz.), Josh Gottheimer (D-N.J.), and Vicente Gonzalez (D-Texas.).
The majority of Democrats on the committee were dismayed by the proposal. Just last week, they pointed out how smaller banks, too, were guilty of reckless practices before last decade’s Great Recession, singling out a failed firm that was eventually taken over by Steve Mnuchin, President Trump’s Treasury Secretary.
“Notably, the costliest bank failure for the government during the financial crisis was not that of a megabank, but of IndyMac Bank, which had total consolidated assets of $30 billion but caused $12 billion in losses” to federal banking insurers, the Democrats said in a committee report.
“IndyMac’s failure was a direct result of its predatory loan portfolio, as well as an unwillingness of its regulator, the Office of Thrift Supervision, to stop this activity,” the lawmakers added.
During his confirmation hearing, Mnuchin was repeatedly accused by Democrats of engaging in foreclosure fraud while leading OneWest, the successor to IndyMac.
Only 124 federally-insured banks out of more than 11,000 are currently examined by CFPB officials, the House Democrats also noted. Currently, depository institutions with less than $10 billion in assets are exempt from agency oversight.
The report was released ahead of a key mark-up next week. On Dec. 5, the Senate Banking Committee begins considering a major proposal to rollback regulations imposed by Dodd-Frank–the legislation that created the CFPB.
The drafted initiative, which has the support of ten committee Democrats, would not directly impact the CFPB–but it would drastically curtail the power of the Financial Stability Oversight Council, a multi-agency body that gets input from the CFPB.
Specifically, the legislation would strip FSOC of its ability to apply more stringent rules to banks with less than $250 billion in assets—a development that would relax oversight on 26 of the country’s largest banks and their $3.2 trillion in wealth. FSOC currently examines firms with $50 billion in assets or more.
There could also be anti-CFPB amendments that get backing next Tuesday from Dems on the committee. A Senate version of the House bill quintupling the CFPB supervision threshold was cosponsored in late June by Joe Donnelly (D-Ind.), a Democratic backer of Tuesday’s Dodd-Frank roll-back.
When the House passed legislation defanging Dodd-Frank last summer, it included a broad assault on the CFPB as an institution. The bill, which didn’t garner a single Democratic vote, proposed watering down the bureau’s authority while re-branding it the “Consumer Law Enforcement Agency.”
Whatever happens next week, the Senate committee mark-up could have a more lasting effect on the CFPB than the temporary appointment of Mulvaney. As a rule of thumb, anything done by an executive appointee in one administration can be undone by an executive appointee in another.
Mulvaney’s temporary rule, however, itself started with some drama that included the possibility of a landmark court ruling.
Outgoing Director Richard Cordray had named Deputy Director Leandra English as the Acting Director, before resigning ahead of schedule on Friday, citing a line of succession enumerated by Dodd-Frank. The move prompted English to file litigation on Sunday night in Washington seeking to block Mulvavney’s appointment.
A preliminary ruling in the lawsuit could come as early as Monday afternoon, The L.A. Times noted. Judge Timothy Kelly, a Trump appointee, was assigned the case.
Correction: A previous version of this story said that the Senate Banking Committee’s Dodd-Frank roll-back mark-up was on Nov. 28.