CFPB Requests No New Funding Under Trump-Appointed Director

By Lydia Beyoud

The Consumer Financial Protection Bureau doesn’t need any new funds for the next quarter, Mick Mulvaney, the agency’s acting director said in a letter released Jan. 18.

The CFPB has sufficient reserves to cover its estimated $145 million second quarter budget, Mulvaney told Federal Reserve Chairman Janet Yellen.

“It is my intent to spend down the reserve until it is of a much smaller size, while still allowing the Bureau to successfully perform its functions, before making an additional financial request of the Board,” Mulvaney said.

The letter — made public one day after Mulvaney announced a top-to-bottom review of agency functions — is the latest sign of how the Trump administration plans to curb the CFPB’s oversight of financial services and products in response to industry complaints the agency has been too aggressive.

Earlier this week, the CFPB said it also plans to revisit a rule targeting high-interest payday loans. The first target of its review of agency functions will be civil investigation demands (CID), which financial firms say are unduly burdensome.

Mulvaney, who simultaneously serves as permanent director of the Office of Management and Budget, was named by President Donald Trump to oversee the CFPB after the Nov. 24 departure of Director Richard Cordray, who is now running for the Democratic nomination for governor in Ohio.

CFPB Under a Microscope

Mulvaney’s CFPB funding decision is as much under a microscope as his other actions since taking over the reins of the agency. The CFPB has a unique funding structure through the Federal Reserve system established by the 2010 Dodd-Frank Act to remove it from the politics of the congressional appropriations process.

The independent source of funding also means the financial regulator would remain open if the federal government shuts down due to Congress and the administration — including Mulvaney’s OMB — failing to reach a budget deal by Jan. 21.

The CFPB’s budget has varied on a quarterly basis over the past year, according to the agency’s website. The $145 million budgeted for the second quarter of fiscal 2018 is approximately the same or more than the CFPB had requested in the last three quarters of fiscal year 2017. However, it’s nearly $100 million less than the $246 million the agency requested and received for the first quarter of FY 2017.

If politics were removed from the equation of the CFPB leadership transition, Mulvaney’s funding move likely wouldn’t be seen as controversial, said Brian Knight, director of the Program on Financial Regulation at the Mercatus Center, a free-market Washington policy think tank.

“Mulvaney is and always was a budget guy,” Knight told Bloomberg Law, referring to Mulvaney’s reputation as a deficit hawk while serving in the House until he joined the Trump administration. The letter indicates Mulvaney determined there was no need, and no statutory language to support, holding onto reserves seen as sufficient to meet the CFPB’s current operating expenses, Knight said.

An agency overhaul, including of its budget, “is to be expected when you have an agency that was created where the leadership is not particularly balanced in any way,” and where an agency head is empowered to pursue policy-making in an ideological direction, Knight said.

Defunding CFPB ‘Not an Option’

But removing politics and ideological swings from the CFPB may be impossible. Many supporters of the agency’s activities under Cordray’s leadership are concerned about the next steps Mulvaney may take to contract the CFPB’s size and activity.

“The CFPB has a job mandated by Congress,” Aaron Klein, policy director for the Brookings Institution’s Center on Regulation and Markets, told Bloomberg Law. “The director has some discretion in how best to fund the Bureau to carry out that mission; not funding the Bureau is not an option,” Klein said.

Mulvaney’s decision to reopen rulemakings related to prepaid cards and payday lending were generally popular with a broad swath of the financial services industry who felt they were overly restrictive. But those actions risk increasing uncertainty in the marketplace, Klein said.

“The focus on using the CFPB to produce economic growth and help responsible financial innovation better serve consumers is an objective most people could share. Achieving that objective requires a smart, nimble and active CFPB, not one that is underfunded, understaffed, or underresourced,” Klein said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

For More Information

Text of the letter is at http://src.bna.com/vJy

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