Divide between Trump and Obama appointed financial regulators widens

There is a widening gap between financial overseers appointed by former President Obama and the regulators hired by President Trump. Director of the Consumer Financial Protection Bureau (CFPB) Richard Cordray’s new attribution rule and any attempts to kill it will be challenged in court.

Keith Noreika, Acting Comptroller of the Currency on wrote a letter to Cordray on Monday to address concerns about “safety and soundness” of the CFPB rule draft version. It seeks to stop companies from forcing customers to only settle disputes via arbitration. The final version of the CFPB rule was issued later the same day.

An untested legal provision has been invoked by Noreika’s letter in which the council of the top financial regulators nationwide known as the Financial Stability Oversight Council (FSOC) has the ability to nullify a CFPB rule which risks drastically damaging the banking system.

Trump picks the head of the Treasury and Securities and Exchange Commission. The FSOC is part of the Commodity Futures Trading Commission next to Noreika.

The CFPB started 6 years ago and Republicans have emphatically stated it was unconstitutional and they have attacked the Democrat Cordray for overstepping his powers.

There are other holdovers besides Cordray, who were appointed by Obama’s Democratic administration; however, he is definitely the most vulnerable. Last year a court ruled that the president can fire him at will. The CFPB is appealing the decision and the Republicans have been attacking relentlessly, but Cordray is holding his ground.

In a 3 page letter to Noreika, Cordray wrote there isn’t any basis for claiming that the banking system is at risk because of the arbitration rule. A detailed 5-page memo also accompanied the letter on Wednesday. On Thursday, Reuters got a copy of the memo.

As per the memo, any attempt by FSCO to overturn the rule “would be subject to a legal challenge”.

A FSOC member has to work in good faith to resolve any issues with the rule before killing it, according to the financial reform law under Dodd-Frank.

Meetings were held in 2015, 2016 and 2017 and there were no concerns from the OCC. Codray wrote on June 26 that there were not any comments on the draft.

Two-thirds of the FSOC have to agree that the CFPB rule is a risk to the whole banking system before the rule can be overturned.

Policy counsel Brian Marshall of the Americans for Financial Reform, a Washington-based advocacy group said that it’s a very high standard and any arbitration rule that would meet the standard is ludicrous.

Regulation, as it impacts those granting credit, and those collecting debt, are a never ending challenge just to keep pace, never mind keep in compliance.  As debt collection attorneys, we can’t help but wonder how recalcitrant debtors will be motivated to pay their past due debts, as more and more regulation strangles those that collect.  The success of our economy is dependent on those that receive credit, whether business or personal, pay their debt, or are held accountable.  We hope that the future sees swift changes in regulation that make it  easier for both lender and debt collector.

Ultimately, if past due debt cannot be reasonably collected, lending institutions will likely be more hesitant to lend debt.   Intense and unfair regulation impacts all involved, from borrower, to creditor, from debt collector to the success our overall economy.

We will be running a mini series related to small business and lending in the coming weeks.  We look forward to sharing with you, as small business truly is the engine that drives the American Economy.

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