White House budget chief Mick Mulvaney once likened government regulations to a "slow cancer," an attitude he shares with many of President Trump's appointees as well as the man himself. So it's hardly surprising that, in his new part-time role as acting director of the Consumer Financial Protection Bureau, Mulvaney would waste little time pulling back on the agency's rules and its authority. It's yet another reminder, as if any more were necessary, that elections have consequences.
But some of Mulvaney's moves suggest that he's forgotten why Congress created the bureau in the first place, as well as the regulatory gap it exists to fill. And if he has, the consequences may be both severe and unwelcome.
The subprime mortgage collapse that triggered the Great Recession in 2007 exposed many weak beams in the financial industry, one of them being the dangerous willingness of lenders seeking short-term revenue to offer loans to people with limited ability to repay. The perversity of the incentives involved became obvious once huge swaths of subprime and exotic loans started going bad, but by then it was too late.
The problems in the mortgage market stemmed in part from irresponsible lenders outside the jurisdiction of federal bank regulators — think New Century Financial Corp. of Irvine, which made more than $51 billion in subprime loans in 2006 only to go bankrupt in 2007. But even for the lenders within their purview, regulators were far more focused on the companies' financial health than on their compliance with laws designed to protect consumers from unfair and predatory terms.
The Consumer Financial Protection Bureau was created to address both of those issues, enforcing existing consumer-protection laws with new vigor and applying them to financial companies that bank regulators overlooked. The two main missions assigned by Congress were to guard against discriminatory practices and to ensure "fair, transparent, and competitive" markets for consumer financial products and services. By cracking down on predatory lending — that is, the making of loans that borrowers can't easily repay — the bureau also provides one more firewall against a new flare-up of loan defaults.
The bureau was active and aggressive under its initial director, former Ohio Atty. Gen. Richard Cordray. In addition to ramping up enforcement actions for lending discrimination and unfair terms, the bureau issued the federal government's first-ever regulations for payday lenders, proposed rules for prepaid credit cards and issued guidelines to combat discrimination in automobile loan terms, among other steps.
Its new rules on payday loans are a good illustration of the bureau's value. It didn't try to ban payday lending, as some states in effect have done through interest-rate caps; instead, it set limits on repeated loans to people with no verified ability to repay. That's an important safeguard against the debt traps that have tainted the payday lending business. Payday loan companies' defenders insist that they provide credit to people who can't get it otherwise, but that's no argument for loans that can't be repaid.
Mulvaney has moved swiftly to undo or delay much of the bureau's work under Cordray, suspending lawsuits, canceling investigations and promising to alter a number of the bureau's rules and guidelines, including the new payday lending rules. He reportedly dropped the bureau's investigation of the data breach at Equifax that enabled hackers to steal Social Security numbers and other sensitive personal information about tens of millions of Americans. He also pared the bureau's efforts to identify and bring enforcement actions against discriminatory lending practices, and suggested that the bureau will roll back the data it collects from lenders about mortgages. The latter move smacks of the kind of see-no-evil regulation that helped pave the way for the subprime fiasco.
Shortly after taking the job in November, Mulvaney told reporters that he'd rather not have a Consumer Financial Protection Bureau. "If the law allowed this place not to exist," he was quoted by Politico, "I'd sit down with the president to try to make the case that other agencies can do this job well if not more effectively."
Mulvaney needs to bone up on recent history. Congress created the bureau because other agencies didn't, and couldn't, do the job well. Rather than trying to undo what the bureau has already accomplished, Mulvaney should focus on identifying and stopping the predatory and discriminatory practices that could fuel the next financial meltdown.