Consumer credit will be less regulated under a Trump administration and a Republican Congress. But it’s hard to tell how far the pendulum will swing. The Wall Street Journal said that Trump would “likely look to clip the wings of the Consumer Financial Protection Bureau.”
What does that mean for us?
Wall Street is one place we can look for clues. Stocks in our industry have been steadily rising since the election results. Over the last five days, Enova International is up 24-percent, OneMain Holdings is up 25-percent, and World Acceptance is up 20-percent.
While those numbers are promising, the election showed that public opinion is unfavorable toward payday loans. South Dakota was a Trump state, but about three-quarters of voters passed a measure to cap payday loan rates at 36-percent.
Those same South Dakota voters rejected a measure that would have allowed payday lenders to set their own rates.
The Los Angeles Times noted that when Trump has talked about Dodd-Frank, he has focused primarily on small banks. Industry experts point out that Trump will need to choose his battles and won’t want to spend his political capital on dismantling Dodd-Frank. Some of Trump’s biggest supporters, like Carl Icanh, have said they wouldn’t back a Dodd-Frank repeal.
While Trump supporters are eager to “drain the swamp” of perceived corruption in Washington, many remember all too well the circumstances that led to the creation of the CFPB. The country was facing a terrible financial meltdown. Elizabeth Warren, who at the time was a Harvard bankruptcy professor, offered a solution – a government bureau that’d help consumers make sense of complicated financial undertakings, while also holding financial companies accountable for controversial products.
The Bureau was built to survive a Republican Congress. It gets its funding from the Federal Reserve, which means that Congress cannot choke its annual budget. If the Senate wanted to change the Bureau, they would need to clear a 60-vote filibuster.
We shouldn’t expect a Trump-led government to dismantle the CFPB anytime soon. But consider this: In past bill negotiations, the White House stripped riders to delay the CFPB’s payday rules. These provisions could survive during a Trump administration.
Then, there’s CFPB director Richard Cordray. Initially, the CFPB director had more staying power. You needed cause to remove him because of a provision set up to protect the Bureau. But last October, a federal appeals court decided that this structure was unconstitutional. They changed the rules so that the president could remove the director for any reason.
While the CFPB will likely appeal that ruling, the stage may be set for Trump to remove Cordray. Although, we should point out that experts believe the CFPB will win its appeal. Even if it doesn’t, it’d take years for Trump’s administration to oust Cordray.
In all likeliness, Cordray will remain the director until his term expires in July 2018. At that time, his role could be replaced by a bipartisan commission. Republicans have been trying to shift CFPB leadership to a five-person committee, more like the FTC.
This setup would give Congress more of a say on what issues the Bureau chooses to focus on. But it’s hard to tell if that would be good or bad for our industry. The Bureau will need to go after someone, and we have played the scapegoat before.
There are too many unknowns to know for sure how all of this will play out. One of the biggest mysteries is how the public will respond to attacks against the CFPB. The CFPB had a huge role in uncovering Wells Fargo’s recent scandal. That won it some points. If people come rallying in defense of the CFPB, it will be hard to undo it.
There’s a better chance Trump will try to dissect bits and pieces of Dodd-Frank and the CFPB. Payday loans probably won’t be a primary focus because of all the negative attention that surrounds this type of funding.
Still, there’s little chance of added legislation (apart from the CFPBs pending rules) coming down the pipeline anytime soon.
One thing is for certain: Our industry should fare better under a Trump administration than it would have with Clinton.