There’s another battle brewing in Washington, though it may not matter all that much to the many venture-backed online lending companies that sprang into existence in the wake of post-crisis regulations.
At the center of this particular drama: The Consumer Financial Protection Bureau, which was established under the 2010 Dodd-Frank Act to protect consumers from predatory lenders and has become a potent consumer watchdog in the ensuing years, with wide power to battle abuses.
Just last week, the CFPB filed a lawsuit against Think Finance — a so-called financial technology provider that’s accused in multiple federal lawsuits of being a predatory lender — for allegedly collecting payments on debts consumers did not owe. (Sequoia Capital had owned nearly 30 percent of Think at one point. Elevate Credit, which provides loans to people with low credit scores and went public in April, was part of Think until it was spun off in 2014.)
Republican lawmakers have long sought to reduce the CFPB’s oversight. Now dueling appointments put its immediate future in question. Last night, President Trump named his budget director, Mick Mulvaney, as acting director of the agency hours after its current leader, Obama-appointed Richard Cordray, announced he would leave the job.
Mulvaney once characterized the consumer protection bureau as a “sad, sick joke,” as notes the New York Times, and he was widely expected to try and unwind Cordray’s legacy.
To counter the administration’s plans, on his way out the door, Cordray named his chief of staff, Leandra English, as the agency’s deputy director.
Under the law, the appointment should make English the agency’s acting director, though the White House says that Mulvaney plans to show up at the CFSB Monday morning anyway. The White House further says Mulvaney will keep his current job as head of the Office of Management and Budget.
If the Trump administration follows through on its threats, Mulvaney will lead both agencies until a permanent head of CFPB is chosen and confirmed by the Senate. The offices of the OMB and the CFPB are across the street from each other in Washington.
Senator Elizabeth Warren, who first proposed the creation of the CFPB as a Harvard law professor in 2007, isn’t going to let that happen quietly. She has already written in favor of Cordray’s decision on Facebook, saying that “President Trump can’t override that. He can nominate the next CFPB Director — but until that nominee is confirmed by the Senate, Leandra English is the Acting Director under the Dodd-Frank Act.”
You can imagine plenty of others will have weighed in by the time this weekend comes to a close.
Still, this fight may not matter all that much to online lenders. At least, they’ll be far more impacted — helped, really — by a different, recent development relating to the CFPB. Specifically, landmark financial regulation that was designed to restricts banks and credit card companies from imposing mandatory arbitration on their customers as a means to resolve disputes was killed last month in a tie-breaking vote from Vice President Mike Pence.
The rule, which had been praised by consumer advocates as giving people more power to fight industry abuses — like the creation of those millions of unauthorized accounts at Wells Fargo — was unveiled in July after years of work by the CSFB. It would have allowed Americans to file class-action suits against banks instead of being forced in many cases into private arbitration.
As we’ve noted in past stories about arbitration — which is also widely used by technology companies to keep disgruntled employees from publicly airing allegations of wrongdoing — the determinations of an arbitrator are binding. Consumer advocates and employment attorneys say that most decisions favor the company, too.