The Biden administration is working to reassert the government's top consumer watchdog, which was sidelined by President Donald Trump, just as the U.S. economy is showing signs of revving up.
The Consumer Financial Protection Bureau, or CFPB, hollowed out and politicized under Trump after his administration failed to eliminate it outright, is a regulatory agency created by former President Barack Obama in response to the last economic crisis. Democratic lawmakers, consumer finance experts and former CFPB employees say the groundwork is being laid for it to re-emerge as the aggressive enforcement entity it was originally envisioned to be, at a time when millions of Americans face unprecedented financial hurdles resulting from the pandemic.
The stakes are high for President Joe Biden, too: His administration has pinpointed the agency as a key weapon in his arsenal to address racial disparities in access to loans, capital and credit, part of major campaign promises to Black Americans and other people of color who have also been disproportionately affected by the Covid-19 crisis.
Experts said a fully staffed, enforcement-focused CFPB gives Biden a crucial tool to advocate for lower- and middle-class Americans who have in recent years, and during the pandemic in particular, been preyed on by financial institutions and subjected to dubious lending and debt collection practices.
"There is going to be a cop on the beat again," said Sen. Elizabeth Warren, D-Mass., who helped create the agency. "The Trump team, they tried to make clear they were there to help big banks and big money lenders, not families. But the Biden administration is focused on using it to level the playing field."
The approach would be in line with the agency's original mission, and it would mark a notable change from its direction under Trump.
Trump's first CFPB chief was Mick Mulvaney, who as a member of Congress had sponsored bills to eliminate the agency. As acting director, Mulvaney froze hiring, ceased investigations and fine collections, suspended most rulemaking and shifted the mission of the agency from enforcement, which helped consumers, to cutting regulations, which experts said helped lenders and other parts of the financial industry.
He famously submitted a budget request for the agency for zero dollars and created a new line of political appointees in each division of the agency, called policy associate directors, who experts and former employees said were meant to politicize the agency. In 2018, the Trump administration stripped the agency of its powers to enforce discrimination cases in lending, a move that enraged many Democrats and consumer finance advocates.
Experts viewed Mulvaney's successor, Kathy Kraninger, as a leader who more subtly exercised a conservative vision for the bureau, reshaping its mission as educating consumers so they can look out for themselves.
During Mulvaney's tenure, a number of enforcement actions were put on hold, but they picked up under Kraninger. Still, the money recovered by actions under both agency chiefs during the Trump administration paled in comparison to the total recovered during the Obama years. Kraminger resigned at Biden's request, hours after he was sworn in.
The Biden administration has already made moves to help return the agency to its original mission.
Biden named as his acting director Dave Uejio, an agency veteran who had served in various roles there since 2012.
Under Uejio, the agency has begun staffing up. In February, it announced a comprehensive recruiting effort for "mission-oriented" lawyers who would help "achieve the agency's mission priorities."
In a statement to NBC News, Uejio said that since he started the acting top job, he has "focused the CFPB on providing relief for consumers affected by the COVID-19 pandemic, and taking action on racial equity."
"We are taking a close look at previous policies that hampered the Bureau's effectiveness, and simultaneously working nonstop through supervision and enforcement to ensure financial institutions are treating consumers fairly and playing by the rules," he said.
He hired as a senior adviser Diane Thompson, a former agency employee who has written frequently about the need for the bureau to focus more specifically on racial inequality and antidiscrimination measures.
Agency officials said the agency no longer employed any policy associate directors.
Richard Cordray, Obama's CFPB director, said hundreds of staff members who joined the agency during the Obama years are likely to be excited by the shift.
"You can flip the switch. You can start bringing enforcement actions again," he said in an interview. "By changing the outlook and attitude at the top, it can still flow right through the organization."
Rohit Chopra, Biden's pick to lead the agency, will be critical to the mission, Warren and others said. Chopra, a member of the Federal Trade Commission, was an assistant director at the CFPB under Cordray and oversaw the agency's student loan policies.
At his confirmation hearing before the Senate Banking Committee this month, Chopra said the agency would resume an aggressive approach in making and enforcing rules to keep banks, lenders and other financial institutions in check — a stark contrast from the department's approach under Trump, which prioritized consumer education over enforcement.
He signaled that the agency on his watch would resume strict enforcement of fair lending standards and crack down on violations committed by debt collectors and payday lenders and that it would boost ways to increase access to credit and capital for consumers who tend to suffer from limited access.
The vote to advance Chopra's nomination to the full Senate was tied along partisan lines. Democratic lawmakers said it was likely that Senate Majority Leader Chuck Schumer, D-N.Y., would discharge the nomination to a full vote.
"This is going to be an agency for people of color — who are more likely to be hit with larger student loans and are more likely to face debt collectors and have to rely on payday lenders — to fight back," Sen. Sherrod Brown, D-Ohio, the chairman of the Banking Committee, said in an interview. "An agency for those who are hit hardest by debt and by the remnants of Jim Crow and of redlining."
"We have a White House that is totally dedicated to rooting out structural racism, and this agency is going to be an important part of doing that," he added.
Some advocates warned that the agency's relative youth could put it at a disadvantage in becoming the champion against systemic racism its backers want it to be.
"As one of the newest federal agencies, the exact bounds of the CFPB's authority are still pretty unclear," said Ashok Chandran, assistant counsel for the NAACP Legal Defense and Education Fund, which was one of dozens of signers of a letter last month applauding the bureau for refocusing on systemic economic racism.
"Its very existence and structure were just recently litigated up to the Supreme Court," Chandran added, referring to the high court decision last summer that made it easier for a president to fire the agency's director.
Chandran said "a good place for Biden's CFPB to start" would be additional rulemaking that creates a "more rigorous framework" for how the bureau tackles rules about disparate impact — a legal concept that says a practice may be discriminatory if it has a disproportionate effect on minorities, even if discrimination is not intended.
"It's still sort of a black box compared to other federal agencies. But that also means there is a lot of potential," he said. "It could be a very powerful weapon in tackling racial inequality in the economic sector."
Harvard Law School professor Howell Jackson, an expert on financial regulation and consumer protection who was a visiting scholar at the CFPB from 2013 to 2015, said aggressive enforcement of fair-lending statues is one area in which the agency can make a big difference. That would include making sure credit and equity are available to low-income consumers and minorities and ensuring that the emerging financial technology sector is working in a way that benefits those groups, he and other experts said.
The experts also stressed that the coronavirus crisis has only increased the need for a robust CFPB. As millions of Americans continue to suffer from the economic fallout, many will be more vulnerable to predatory practices that can be prevalent among payday lenders and debt collectors — which are regulated by the CFPB.
In addition, experts and lawmakers warned that once the various deferrals on evictions and mortgage, student loan and rent payments end, consumers could face a historic level of defaults and late payments.
"Even before the pandemic, there were a large number of families struggling financially, living paycheck to paycheck, families who were most at risk of being seriously injured by market forces. And it’s certainly gotten a lot worse for many families over the last year,” said David Silberman, who worked at the CFPB as the associate director for research, markets, and regulation from its inception through February 2020. “Having the government on their side and looking out for them, and ensuring they can’t be taken advantage of is more important than ever."