The Finance 202: Trump administration is winning the war on the CFPB

THE TICKER

The Trump administration may have lost a battle this week in its bid to hobble the Consumer Financial Protection Bureau. But it looks to be winning the war. 

My colleague Renae Merle scooped Thursday that the administration has stripped enforcement power from the CFPB office that polices discriminatory behavior by financial firms.

The Office of Fair Lending and Equal Opportunity has been one of the more effective operations within the consumer agency during its brief history. It has netted tens of millions of dollars in settlements, including against a New Jersey bank accused of redlining, and Ally Financial, which faced charges that it allowed minority borrowers to pay more for car loans. Now, Mick Mulvaney — a CFPB foe serving part-time as its acting director — is moving the office into his own. Its new focus there, per an email Mulvaney sent to staff and Renae reviewed, will be on “advocacy, coordination and education,” which translates into giving up on enforcement or overseeing companies. 

The news comes on the heels of a court loss for those hoping to bring the CFPB to heel. The U.S. Court of Appeals for the District of Columbia ruled Wednesday that the agency’s single-director structure meets constitutional par and that the president can remove the director only for cause.

Republican critics, including in the Trump administration, have been seeking to upend the leadership model, either allowing the president to fire the director at will or replacing the director entirely with a commission. The Thursday news suggests it may not matter: With Mulvaney — and presumably, eventually, a Senate-confirmed director of Trump’s choosing — in control, a watchdog for consumers can be retrained as something else entirely. 

From Renae’s story: 


“Beyond moving the Office of Fair Lending, Mulvaney has also dropped lawsuits against payday lenders and said the agency would reconsider aggressive rules the industry complained would cripple it. In a memo to the staff last week, Mulvaney said the CFPB would no longer attempt to ‘push the envelope’ in enforcement cases. ‘We are government employees,’ he said. ‘We don’t just work for the government, we work for the people: those who use credit cards and those who provide them.’”

Indeed, Mulvaney has had a busy two months atop an agency that commands only part of his time — he is also chief of the Office of Management and Budget (not a small job):

• Upon taking the job in late November, Mulvaney implemented a 30-day freeze on hiring and new regulations. “It is a completely unaccountable agency, and I think that’s wrong,” he said at the time. “If the law allowed this place not to exist, I’d sit down with the president to try to make the case that other agencies can do this job well if not more effectively.” He provoked a backlash when he announced plans shortly thereafter to start stocking the bureau’s ranks with political hires. 
• He updated the bureau’s mission statement to more accurately reflect its new deregulatory bent, to help “consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations.” Mulvaney elaborated on that shift in a Wall Street Journal editorial last month, in which he referred to working for everyone, including both those who use credit cards and those who issue them. 
• Mulvaney at the end of last year directed the bureau to delay implementing new rules for prepaid cards developed before he took the helm. The same day, it announced it would roll back requirements under the Home Mortgage Disclosure Act. And in addition to dropping its lawsuit against payday lenders, the agency under Mulvaney has pulled out of an investigation into a company accused of preying on detained immigrants and quit another probe of an installment lender accused of abusive practices.  
• Last month, when the bureau’s quarterly funding request came due, he asked for nothing, explaining he could cover its expenses by drawing on its reserves. 
   

Richard Cordray — Mulvaney’s CFPB predecessor and now a Democratic candidate for Ohio governor — lashed out at Mulvaney over his maneuver on the fair-lending office:
 

Mulvaney spokesman John Czwartacki defended the move in a statement to Renae: “By elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities. By combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”

Mulvaney’s short tenure in the job suggests enhancing the bureau’s effectiveness is hardly topping his priorities. 

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MARKET MOVERS

— Tech roars. WSJ’s Laura Stevens and co.: “Three of the biggest tech companies reported record quarterly financial results on Thursday as they extended their dominance over swaths of the global economy. Apple Inc., AAPL 0.21% Alphabet Inc. GOOGL -0.05% and Amazon.com Inc. AMZN -4.20% —with a combined market value of more than $2 trillion—all boosted growth by broadening their reach into new areas.

• Apple’s revenue rose 13% to $88.29 billion, fueled by its move to increase smartphone prices behind its new flagship iPhone X, released in November at $1,000. The company, whose profits topped $20 billion for the first time, is also increasingly benefiting from its services business, including App Store sales and music and payments services.
• Google parent Alphabet recorded its 32nd consecutive quarter of revenue growth of 20% or more, continuing a dominant run as it handles more than 90% of internet searches and owns the world’s most influential video site. Google is building in other areas, including cloud computing, a business that Google Chief Executive Sundar Pichai said brings in $1 billion a quarter.
• Meanwhile, Amazon—long known for prioritizing growth over earnings—delivered a profit exceeding $1 billion for the first time as its revenue jumped 38% to $60.5 billion.”

As Google takes a tax hit. Washington Examiner’s James Langford: “Google parent Alphabet posted a $3.02 billion loss at the end of 2017 after a $9.9 billion charge to cover initial costs of the GOP’s tax overhaul. The tech giant, known for its ubiquitous search engine, joins S&P 500 stalwarts from Citigroup to General Electric that have posted quarterly losses because of provisions in a law designed to drive U.S. economic growth by cutting the top corporate rate to 21 percent from 35 percent.”

MONEY ON THE HILL

— House GOP preps funding through March. Politico’s John Bresnahan: “The House could vote as early as Tuesday on a stopgap bill to fund the government through March 22, according to multiple GOP sources. Congress has until Feb. 8 to avoid another shutdown, but finding the votes in the House will not be easy for GOP leaders. Conservatives and defense hawks are threatening to oppose yet another short-term funding bill. House Democrats, meanwhile, have refused to back stopgap measures without securing relief for Dreamers.”

— Gary Cohn talks infrastructure. Axios’s Jonathan Swan: “Cohn — who sat on a panel with Transportation Secretary Elaine Chao and key GOP members — said the administration’s plan targets $1.5 trillion in infrastructure investment, reduces permitting process times and pays for projects in rural areas… There was a discussion about raising the gas tax to pay for infrastructure. Rep. Bill Shuster was pushing them to take a serious look at the gas tax and not rule anything out. Cohn had said that as an administration they are open to supporting Congress looking at all options to raise revenue. There was respectful conversation on the subject, the source told me, with Sen. John Barrasso disagreeing and Sen. John Thune seeming intrigued.”

Shuster backs gas tax. Bloomberg’s Anna Edgerton and Laura Litvan: “The Republican lawmaker central to passing an infrastructure bill said the key may be getting his GOP colleagues to set aside years of opposition and embrace raising the tax on gasoline. {[Rep.] Bill Shuster of Pennsylvania, chairman of the House Committee on Transportation and Infrastructure, said he urged his fellow Republicans at their legislative retreat to consider raising the gas tax to bolster the U.S. highway system, arguing that it’s a user fee that Americans are willing to pay.He called the tax, which is 18.4 cents-per-gallon and hasn’t be raised since 1993, ‘the elephant in the room’ in the infrastructure debate and said… a 15-cent hike might be appropriate. Any increase still faces steep resistance in his party, he said.”

— Hatch weighs credit union fight. The Hill’s Sylvan Lane: “The chairman of the Senate Finance Committee expressed fears in a Wednesday letter to a top U.S. regulator over whether credit unions are sticking to their intended purpose while they’re still exempt from federal corporate income tax. Sen. Orrin Hatch (R-Utah) pressed National Credit Union Administration Chairman Mark McWatters on his efforts to loosen restrictions on credit union activities. Hatch wrote that he’s ‘concerned that the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt purpose.’ He cited moves by McWatters to loosen the field of membership constraints and allow credit unions to lend to businesses and expand their financial portfolios.”

— Financial Services Roundtable chief considers gov run. MPR’s Brian Bakst: “Former Minnesota Gov. Tim Pawlenty is actively considering a political comeback. Pawlenty is weighing a campaign for his old job and is convening a group of Republican donors and political movers this month as he seeks advice about entering a governor’s race without a clear favorite. Pawlenty sent emails on Wednesday to a select group, inviting them for a morning gathering on Feb. 12 at an undisclosed Minneapolis location with the agenda as ‘important meeting regarding Minnesota’s future.’ The email obtained independently by MPR News and later verified as authentic by a Pawlenty adviser asks the recipients to reserve the time and promises details on the location later.”

TRUMP TRACKER

— Labor dumps tips data. Bloomberg’s Ben Penn: “Labor Department leadership scrubbed an unfavorable internal analysis from a new tip pooling proposal, shielding the public from estimates that showed employees could lose out on billions of dollars in gratuities, four current and former DOL sources tell Bloomberg Law. The agency shelved the economic analysis, compiled by DOL staff, from a December proposal to scrap an Obama administration rule. The proposal would permit tip pooling arrangements that involve restaurant servers and other workers who make tips and back-of-the-house workers who don’t. It sparked outrage from worker advocates who said the move would permit management to essentially skim gratuities by participating in the pools themselves.

Senior department political officials—faced with a government analysis showing that workers could lose billions of dollars in tips as a result of the proposal—ordered staff to revise the data methodology to lessen the expected impact, several of the sources said. Although later calculations showed progressively reduced tip losses, Labor Secretary Alexander Acosta and his team are said to have still been uncomfortable with including the data in the proposal.”

— Steel exec presses Trump. Reuters’s David Lawder and Lesley Wroughton: “The chief executives of top American steel companies and related groups urged President Donald Trump on Thursday to urgently impose trade measures to curb excess steel capacity and surging imports they say are undermining the U.S. industry. A letter, sent to the White House and Congress by the American Iron and Steel Institute and the Steel Manufacturers Association, called on Trump to immediately act under the rarely used ‘Section 232’ of a 1962 U.S. trade law, which allows for restrictions to protect national security.”

RUSSIA WATCH: 

— Trump expected to release memo. The Post’s Carol D. Leonnig and co.: “Trump is expected to approve the release of a controversial congressional memo alleging surveillance abuses by the FBI, and House Republicans are likely to make it public on Friday, according to senior administration officials. The memo, which has created a political firestorm, suggests that the origins of special counsel Robert S. Mueller III’s probe into Russian interference in the 2016 election were tainted by political bias. It alleges that the FBI, when obtaining a surveillance warrant, relied in some part on a dossier of allegations against then-candidate Donald Trump that was underwritten by the Hillary Clinton campaign and the Democratic National Committee. Trump has read the GOP memo, the administration officials said, and once he formally approves its release, the White House will transmit it back to the House Intelligence Committee, which has the authority to make it public.”

He didn’t think too hard about it. The Post’s Philip Rucker, Ashley Parker and Josh Dawsey: “Trump was only vaguely aware of a controversial, classified memo about the FBI’s Russia investigation when two House conservatives brought it to his attention in a Jan. 18 phone call. The conversation piqued Trump’s interest. Over the next two weeks, according to interviews with eight senior administration officials and other advisers to the president, he tuned in to cable television segments about the memo. He talked to friends and advisers about it. And, before he had even read it, Trump became absolutely convinced of one thing: The memo needed to come out.”

Fears that Wray could quit. CNN’s Dana Bash, Jeff Zeleny and Evan Perez: “Top White House aides are worried FBI Director Christopher Wray could quit if the highly controversial Republican memo alleging the FBI abused its surveillance tools is released, multiple sources with knowledge of the situation tell CNN. Wray has made clear he is frustrated that President Donald Trump picked him to lead the FBI after he fired FBI Director James Comey in May, yet his advice on the Nunes memo is being disregarded and cast as part of the purported partisan leadership of the FBI, according to a senior law enforcement official. Wray’s stance is ‘raising hell,’ one source familiar with the matter said.”

Comey weighs in on Twitter:

— Gates lawyers withdraw. Politico’s Darren Samuelsohn: “Three attorneys representing Rick Gates told a federal court Thursday they are immediately withdrawing as counsel for the former Donald Trump campaign aide, who is fighting special counsel Robert Mueller’s indictment of him on money laundering and other charges. Lawyers Shanlon Wu, Walter Mack and Annemarie McAvoy said in a two-page motion that they would explain the reasons for their abrupt move in documents filed under seal with the U.S. District Court for the District of Columbia… While Gates’ shift in legal strategy was a surprise, speculation had been mounting that the longtime GOP operative might be seeking to cooperate with the Mueller investigation. CNN reported last month that Gates had added Washington defense attorney Tom Green to his team, noting he’d been spotted at Mueller’s downtown office twice.”

POCKET CHANGE

— Productivity slips. WSJ’s Eric Morath: “U.S. worker productivity grew below its long-run average for the seventh straight year in 2017. Nonfarm business-sector productivity, measured as the goods and services produced per hour worked, advanced 1.2% last year from 2016, the Labor Department said Thursday. That matched the average rate recorded from 2007 through 2017, and is well below the 2.1% annual rate averaged since 1947. Productivity hasn’t topped its long-run average since 2010, when the economy was first emerging from a deep recession. In the fourth quarter, productivity decreased at a 0.1% seasonally adjusted annual rate. The first quarterly decline since early 2016 offset what had been solid gains in the middle of the year.”

IN BETTER NEWS: Manufacturing in January expanded at close to its fastest pace since 2004, and U.S. consumer confidence last week reached its highest levels in nearly 17 years, per Bloomberg. 

— Deutsche Bank: Contagion risk growing. Bloomberg News’s Lu Wang: “The concerted selloff that landed on stocks and bonds this week may be a taste of what’s to come for financial markets. That’s the warning in new research from Deutsche Bank AG strategist Binky Chadha, which found everything from equities to bonds, oil and currencies are moving in unison to a degree rarely seen during this market cycle. The tight relationships reflect a theme that traders are increasingly embracing: accelerating growth in the global economy. But there’s a related danger: that pain in one asset will spread quickly to another. Consider Tuesday, when a rise in Treasury yields sent stocks reeling while oil and the dollar also fell. Investors had nowhere to hide.”

— Wells Fargo will disclose pay gap. Bloomberg’s Laura J Keller and Laura Colby: “Wells Fargo & Co. agreed to disclose the gaps between what it pays men and women as well as disparities for minority groups, a spokeswoman said. The San Francisco-based firm is the third major U.S. bank in recent weeks to change its policies on pay transparency under pressure from Boston-based Arjuna Capital, a shareholder in the banks. Citigroup Inc. said last month it would assess its gender pay gap in three countries and for U.S. minorities while Bank of America Corp. also said it would improve disclosures.”

THE REGULATORS

— Fed, OCC to ease leverage rule. Bloomberg’s Yalman Onaran: “Bank of New York Mellon Corp. and State Street Corp. stand to benefit most as U.S. regulators rush to ease a key leverage rule, giving the custody-banking giants room to once again accept deposits they’ve shunned in recent years. The Federal Reserve and the Office of the Comptroller of the Currency may unveil a proposal as early as next week to ease the leverage ratio from the 5 percent minimum currently in place for the nation’s eight largest banks, according to people with knowledge of the plan. BNY Mellon and State Street would see their minimum requirement drop to below 4 percent, giving the pair leeway to soak up billions of dollars in additional deposits.”

CHART TOPPER

A look at why companies spend so much on Super Bowl ads, from the Wall Street Journal’s Elliot Bentley: 

DAYBOOK

Today

• The American Enterprise Institute hosts an event on the divide between education and employment.
• George Mason University’s holds its 14th annual Symposium of the Journal of Law, Economics and Policy.

Coming Up

• The Peterson Institute for International Economics hosts an event on “Charting Europe’s Path Forward” on Feb. 13.

THE FUNNIES

From the New Yorker: 

BULL SESSION

President Trump calls 2017 “one of the greatest years:”

House Speaker Paul D. Ryan (R-Wis.) defends the House Intelligence Committee’s handling of the memo: 

Who is Rep. Devin Nunes (R-Calif.), who has been a controversial figure in the Russia investigation?

Watch Jimmy Kimmel on Trump releasing the GOP memo: