Efforts to curb, and possibly eliminate, the U.S. Consumer Financial Protection Bureau (CFPB) are bad for consumers, but neutral to modestly positive for the firms under its oversight, says Morningstar DBRS Inc.
In a research note, the rating agency said that there’s no immediate credit impact on the non-bank firms under its oversight — such as non-bank lenders, credit card providers, and payday loan companies — from the potential shutdown of the CFPB.
In early February, the newly installed acting head of the CFPB — which was created in the wake of the financial crisis to combine the consumer protection functions from various federal agencies — directed its staff to stop supervisory activities. Its headquarters was closed, and it indicated that it won’t be seeking operational funding from the U.S. Federal Reserve Board, DBRS noted.
“The cessation of the agency’s operations appears to be in line with the Trump administration’s focus on reducing regulatory burdens on the economy,” it said — although it’s not clear that it can unilaterally close a federal agency without Congressional approval.
Ultimately, shuttering the CFPB would have negative implications for consumers, “who will no longer have an advocate to assist them with understanding their rights as consumers or understanding basic financing,” it said.
In particular, the CFPB’s efforts to reduce credit card fees, to remove certain medical bills from consumer credit reports, and any ongoing litigation on behalf of consumers, are “now unlikely to move forward,” it said.
Conversely, this could be “modestly positive” for the financial firms that have been under its oversight, by reducing legal, compliance, and regulatory costs that originated with the CFPB’s activities, the report suggested.
“Overall, our view is that a permanent closure of the agency would not materially affect the operations of [firms], as we would expect them to maintain their developed risk management frameworks and compliance departments rather than dismantle these functions altogether,” it said.
Additionally, while closing the CFPB would remove a regulator from the field, most of these firms would remain under oversight of various other state and federal authorities.
“We do not anticipate the risk appetite of [financial firms] to increase because of the CFPB’s closure,” it said.
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