Tuesday , October 23, 2018

Cordray’s Departure Casts a Shadow of Uncertainty Over the CFPB’s Payments Policies

Richard Cordray, the only person so far to serve as director of the federal Consumer Financial Protection Bureau, announced Wednesday that he will resign by month’s end. The widely anticipated move casts uncertainty over the CFPB’s future, including its policies on electronic payments.

“For President Trump, it will be yet another opportunity to put his stamp on a nominee who is friendlier to business and more inclined to deregulate,” Mark Hamrick, senior economic analyst at Bankrate.com, an online publisher of financial information for consumers, said in a statement. “For consumers, the risk is that they will have fewer advocates working for them in the federal government.”

The Washington, D.C.-based Electronic Transactions Association, which disagreed with the CFPB on some payments issues, put out a diplomatic statement shortly after Cordray’s announcement.

“We thank Director Cordray for his service at the CFPB and wish him well in his future endeavors,” ETA chief executive Jason Oxman said in the statement. “We have appreciated his willingness to listen to input on our shared goal of helping consumers achieve their financial goals.”

A creation of the Dodd-Frank Act, which Congress, then controlled by Democrats, passed in 2010 in the wake of the financial crisis, the CFPB drew fire from Republicans and the financial industry from the day it was born. Dodd-Frank exempted the CFPB from various Congressional controls on most other regulatory agencies, including its budget. That independence gave the bureau wide latitude to challenge banks, payday lenders, and other financial companies over what it deemed anti-consumer practices or products.

Most recently, the CFPB tried unsuccessfully to stop financial companies from continuing their now-entrenched practice of requiring consumers to waive their right to join class-action lawsuits in disputes over credit cards and other accounts, and instead agree to mandatory arbitration. Banks and trade groups such as the ETA argued arbitration was a faster and less costly alternative. The Senate last month invoked a rarely used law, the Congressional Review Act, to overturn the CFPB’s anti-arbitration rule after similar action by the House last summer, and Trump signed the measure Nov. 1.

In other payments matters, a federal judge in Atlanta this year chastised a CFPB lawyer over the agency’s conduct in its 2015 lawsuit against some allegedly fraudulent debt collectors and four payment processors working with them. The Bureau claimed the processors should have known what the debt collectors were up to. The judge dismissed the CFPB’s claims against the processors before the case was tried on grounds that the CFPB tried to avoid being questioned during depositions, and failed to produce a knowledgeable witness who could explain its case.

In another high-profile payments matter, the CFPB has issued a massive rule governing prepaid accounts—nearly 1,700 pages of regulations and supporting documentation—but has delayed its planned Oct. 1, 2017, effective date until next April 1 to give the prepaid industry more time to make the necessary changes for compliance.

Cordray’s term was set to expire next summer, but an early departure was widely expected after Donald Trump took office in January, giving Republicans control of the White House and both houses of Congress. He is rumored to be interested in running for governor of Ohio, but he did not mention that in his resignation announcement, which came in the form of an email to CFPB staff.

Whoever Trump nominates as his replacement, that person seems likely to be less confrontational with business than Cordray.

“We look forward to working with the White House, Congress, and the CFPB to ensure a regulatory environment that encourages innovation,” Oxman said. “Creating and promoting a pro-innovation regulatory environment for ETA members—more than 500 financial, technology and payments companies that make electronic commerce possible—is critical to consumers and our nation’s economy.”

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