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Washington Wrap — Trump budget proposes reforming the CFPB again

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Washington Wrap — Trump budget proposes reforming the CFPB again

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com and polo.rocha@spglobal.com.

At the White House

President Donald Trump and Office of Management and Budget Director Mick Mulvaney released the administration's budget Feb. 12, which proposes Congressional control via appropriations of the Consumer Financial Protection Bureau and the Financial Stability Oversight Council.

In the mean time, Mulvaney, who is also serving as the acting director of the CFPB, suggested capping the Federal Reserve funds that currently sustain the bureau's operations.

The administration recommended Congressional changes to the structure of the bureau, with reforms fully taking effect by 2021. The CFPB changes were similar to suggestions in Trump's 2017 budget.

But lawmakers have had little appetite to legislate large structural changes at the CFPB. The House Financial Services Committee had pushed package legislation that would have reformed the bureau into a "Consumer Financial Opportunity Agency" but Republicans, with control in both the House and the Senate, have opted for more moderate proposals for financial regulatory reform that do not involve CFPB changes.

The budget also proposed eliminating the Securities and Exchange Commission's reserve fund, shrinking the Office of Financial Research, and eliminating funding for the U.S. Treasury Department's Community Development Financial Institutions Fund grants.

At the regulators

The Office of the Comptroller of the Currency, the Financial Crimes Enforcement Network, the Federal Reserve and the U.S. Attorney for the Southern District of New York came down on U.S. Bancorp and its bank subsidiary U.S. Bank NA for failing to resolve issues regarding its Bank Secrecy Act and Anti-Money Laundering compliance practices. On Feb. 15, the company was slapped with a $613 million fine reflecting penalties from all investigating agencies.

The company allegedly capped the number of alerts that corresponded to a transaction's level of risk, which U.S. Attorney Geoffrey Berman said was the result of efforts to operate BSA/AML compliance "on the cheap." The company is also accused of failing to file a timely report on suspicious banking activities related to Scott Tucker, who was convicted for operating a network of payday lending companies and using U.S. Bank accounts to launder his profits.

The Southern District of New York also announced criminal charges on the company, but has agreed to defer prosecution for a period of two years.

At the Fed

Only $15 million of the total penalties against U.S. Bancorp were levied by the Fed, but the fine marks the first major enforcement action under Chair Jerome Powell, who follows in the footsteps of a former Fed chair that took unprecedented regulatory action against Wells Fargo & Co.

Powell had his ceremonial swearing-in ceremony Feb. 13, where he said the financial system is "incomparably stronger and safer" than in the past and that the Fed will "continue to pursue ways to improve transparency" to the public.

His agency, meanwhile, got good marks from the public in a new survey from the Pew Research Center, which found 63% of U.S. adults have a favorable opinion of the Fed and 19% have an unfavorable one. Its approval among both Democrats and Republicans was at 65%, with support among Republicans growing over the past year.

The Fed, though, was not the most popular agency among the 10 that Pew asked about and ranked in the middle of the pack. The top honor went to the U.S. Postal Service, which had an 88% favorability rating. The Department of Education's 53% favorability rating put it at the bottom of the list.

Other News

The U.S. House of Representatives passed a bill Feb. 14 that would provide a much sought-after "Madden fix" to clarify the rights of digital lenders when entering a partnership with a bank. The bill, which clarifies that a loan would retain its validity if transferred to a third party, would shield loans from state laws that may otherwise challenge the validity of a loan. The Senate has a matching bill but has not voted on it yet.


Mulvaney reiterated yet again that the CFPB intends to "go no further" than its congressional mandate in enforcing consumer protection laws, this time outlining the agency's strategic plan to focus on internal efficiency and reviewing existing processes.

Democratic lawmakers continue to worry that Mulvaney will drop several investigations against high-profile companies targeted by former Director Richard Cordray. Democrats sent Mulvaney a letter Feb. 16 asking for more detail on his decision to consolidate the fair-lending enforcement division into his own office.

Testifying to Congress on Feb. 13, Mulvaney attempted to clarify his agency's approach to pending enforcement actions. He told lawmakers that there has been "no change in the position" between his leadership and Cordray's leadership over the Equifax Inc. issues, but admitted that he did have a say in dropping the lawsuit against Golden Valley Lending Inc. and other online lenders.

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