Market Matters: What’s the Future of Collections Regulation?

By: W. Judd Peak, Corporate Compliance Officer of Frost-Arnett

The election of Donald Trump as President-Elect and retention of Republican majorities in Congress signal an uncertain (and possibly unexpected) future for regulation of the credit and collections industry. One of the primary governmental enforcers, the Consumer Financial Protection Bureau (CFPB), is likely to encounter heightened scrutiny and possible diminution of its oversight powers. Indeed, the day after the election Massachusetts Senator Elizabeth Warren (an early advocate of its creation) visited the CFPB’s offices in Washington, DC to discuss what lies ahead. As she later noted on her Twitter account, “Wall St banks & their GOP friends are already licking their chops to undercut the CFPB.”

While spokespersons for Trump have not officially declared intentions for the bureau, others in the Republican Party will advocate for reform. Texas Representative Jeb Hensarling, a long-time critic of the CFPB, will hold a great deal of clout within the Trump administration, and as chairman of the House Financial Services Committee, he will be in a position to effect substantial rollback of CFPB authority. Two of his stated initiatives are to replace the single Director with a five-person committee and to reallocate the CFPB’s budget such that it comes from Congress appropriations rather than the Federal Reserve.

The possible erosion of the CFPB’s power is not limited to Congress. In October 2016, the D.C. Circuit Court of Appeals (the nation’s second most important court) ruled that the current structure of the CFPB is unconstitutional. The court held that the single-director configuration improperly placed too great authority in one person for an independent agency and that the CFPB should be subject to the authority of the President. This ruling would allow President Trump to remove the director for political reasons, rather than merely “for cause.” It would also make the CFPB subject to a variety of executive orders. The court’s decision is currently subject to a request for reconsideration by the CFPB, so the ultimate outcome is still unknown.

The CFPB will likely stay intact in the years to come. However, changes to its powers and scope of authority may well be in the making. Frost-Arnett will stay on top of these issues as they develop.