What Trump’s Budget Means for Tribal Lenders
President Trump released his budget proposal for fiscal year 2018 on May 23rd, and it includes some significant funding reductions to the Consumer Financial Protection Bureau’s (CFPB) budget for next year in the amount of $145 million. This budget cut is part of a restructuring effort by the Trump Administration, and total budgetary cuts to the agency are expected to total nearly $7 billion over the next decade.
As an independent federal agency, the CFPB draws operational funding from the Federal Reserve and is exempted from Congressional appropriations by the Dodd-Frank Act. However, the CFPB is not afforded an unlimited budget, but rather it is capped as a percentage of the Federal Reserve’s total operating budget.
The CFPB is charged with the primary responsibility of supervising consumer finance markets, writing rules related to those markets, and enforcing federal consumer protection laws. While the agency gets a significant portion of its budget from the Federal Reserve, the CFPB also maintains a Civil Penalty Fund where fines levied against consumer finance participants are kept to be redistributed to aggrieved consumers and used for financial literacy education. While the CFPB generally does an adequate job of finding and compensate victims of consumer finance fraud, some members of Congress have found issue with the method by which the CFPB generates fines for the fund.
The restructuring of the CFPB is being led by Rep. Jeb Hensarling (R- TX), Chairman of the House Financial Services Committee, although federal courts may have first say on how the agency is structured in the future. A slashed budget for the agency will likely limit its capacity to exercise its core supervisory, rulemaking, and enforcement functions. Reductions in staff due to budget cuts could slow down the rulemaking process, leaving less personnel to review and analyze thousands of public comments on proposed rules. Budget limitations could also curtail the agency’s capacity to initiate lawsuits and generally enforce consumer protection laws.
However, the CFPB is not the only federal agency with the authority to police consumer finance, the Federal Trade Commission’s Bureau of Consumer Protection holds complimentary authority over nearly all federal consumer finance laws and even a long history of promoting financial literacy, so a sharp reduction in the CFPB’s enforcement authority would not leave American consumers unguarded from unscrupulous financial practices. The White House is estimating that the total budget savings on Dodd-Frank Reform could total $35 billion over the next ten years. President Trump’s budget proposal still needs to be passed by Congress, and early reactions are mixed.
