Specifics of Hensarling Plan for CFPB Discovered in Leaked Memo

Last week the New York Times reported that a leaked memo drafted by House Financial Services Committee Chairman Jeb Hensarling (R-TX) detailed plans to weaken the CFPB.

According to the report, plans include allowing the president to replace the CFPB director at any time, limit enforcement authority, reduce the ability to make rules, and repeal the consumer complaint system. Also, perhaps most significantly, he proposes to block the CFPB from being able to use unfair or deceptive acts and practices (UDAAP) as a means of enforcement. This is perhaps the most powerful tool the bureau has because it allows the agency to go after just about any business of any size, whether or not it is specifically defined in its charter.

On Janaury 18 another member of the House Financial Services Committee and cosponsor of The CHOICE Act, Rep. Robert Pittenger (R-N.C.), wrote an article that was published in the Charlotte Observer in which he called Dodd-Frank an “albatross… which has impeded access to capital and credit for small businesses and entrepreneurs.” He offered facts including a decline in the number of community banks from 7,093 in 2010 to 5,521 today. This decline, he says, can be directly attributed to new compliance costs.

UPDATE: 1:30PM 2/13/17 insideARM has acquired a copy of the memo. You can see it here. The following are the reccommendations especially relevant to the ARM industry:

CFPB is to be retained and re-structured as a civil law enforcement agency similar to the Federal Trade Commission, with additional restrictions on its authority:

1. Sole diretor, removable by the President at-will
2. Elimination of consumer education functions
3. Rule-making authority limited to enumerated statutes
4. UDAP authority repealed in full
5. Supervision repealed
6. Consumer complaint database repealed
7. Market monitoring authority repealed
8. Enforcement powers limited to cease and desist and CID/Subpoena powers
9. Mandatory advisory boards repealed
10. Research function eliminated
11. Strengthen the existing Dodd-Frank language that the CFPB's jurisdiction does not include entities regulated by either the SEC or CFTC

insideARM Perspective

It will no doubt remain unclear for some time how all of this may affect the ARM industry, which has also been burdened by a massive increase in compliance costs. If the CFPB doesn’t get eliminated in its entirety, larger collection agencies, which are not supervised by another agency, would likely remain under its purview.

[Note: Based on the update above, after reviewing details of the memo -- which, it should be noted, is all it is, a memo -- if #5, "supervision repealed" were to happen, this indeed would also affect "larger market participants," which the bureau identified in 2012 as being those businesses with more than $10 million in revenue from collection activities.]

Dismantling Consumer Response would certainly represent a change for all collection agencies and creditors. However, the ability to file complaints and actually get a response from large companies has been popular among consumers, so it's possible this would simply be used as a bargaining chip as other trade-offs are made.