WASHINGTON — President Donald J. Trump signed executive orders today to roll back Obama-era financial regulations. One could set the stage for a potential end to Richard Cordray’s job as the top consumer-finance cop.
Although that outcome is not certain, the White House did not rule it or any other changes out. Cordray, director of the Consumer Financial Protection Bureau and a former Ohio attorney general mentioned as a possible Ohio gubernatorial candidate in 2018, has been considered at risk since Trump became president.
The other order will suspend the start of a rule meant to protect retirement savers from predatory financial advisers and investment firms more interested in earning high fees than in giving the best advice. It will ask the secretary of labor to reevaluate the rule within 90 days.
The so-called Fiduciary Rule, scheduled to start phasing in in April, would have required professionals who offer financial advice for people with IRAs and 401(k) accounts to put the interest of the customer ahead of their own or their firm’s interest in big fees or commissions. An investment’s mere “suitability” for a client’s retirement account would no longer be enough.
A senior White House official, briefing reporters on condition that he not be named, said President Donald Trump’s administration disagrees with President Barack Obama’s assertion that this regulation would save Americans billions from unscrupulous advisers and firms. The Obama White House said that while most advisers are honest, the lack of a “best interest” rule cost Americans saving for retirement a collective $17 billion a year.
Rather, the Trump administration official said, the rule would impose a “huge” liability on people providing retirement investment advice, whether an independent adviser or a retirement account company. The rule would “take away a huge variety of assets” available to savers because an adviser would be afraid to recommend them for fear of being sued by a consumer who thinks the investment is not in his best interest.
“You’re inhibiting choices” of consumers, the official said.
Asked for examples, he said many retirement savers could be advised to put their money in low-fee index funds — mutual funds or similar investment vehicles that track the makeup and returns of stock and bond indexes such as the Standard and Poor’s 500. Low-cost index funds are frequently recommended for people who want to match average stock returns and not try to guess on beating the market.
But the Trump White House says other, higher-fee mutual funds might provide a better return or be more suitable for some savers — and that investment companies could be afraid to recommend them under the Obama rule.
“I believe the average consumer has the ability to make these choices,” the senior White House official said. Asked if consumers have complained about advisers playing it too safe, he said that since the rule has not been implemented yet, they have not.
The Obama administration had not singled out actively managed mutual funds as abusive. It had, however, noted examples of retirement savers or recent retirees being told to put their money into variable annuities, a more complex investment that can have high fees and stiff financial penalties if a consumer wants his or her money back before a certain time.
Both of the executive orders are sure to infuriate consumer watchdog groups and Democrats.
The order potentially affecting Cordray is broad in its scope. It directs the secretary of Treasury to begin an open-ended review of financial regulations implemented under the Dodd-Frank bill.
Dodd-Frank, passed by a Democratic Congress in 2010, restricted credit and lending practices that can be predatory or abusive. It established the CFPB, which Cordray directs under a five-year presidential appointment.
The bureau has cracked down on auto lenders for alleged racial discrimination in setting interest rates. It is considering capping interest rates on payday loans. It has required more clearly worded consumer-financial documents, and has fined collection agencies and even banks such as Wells Fargo & Co. for consumer abuses.
Critics including the lending industry say the bureau has added red tape and fear into their jobs, even when they are putting customers first.
Similarly under review, the so-called Volcker Rule, also derived from the Dodd-Frank legislation, restricts banks from making risky investments, ending some of the complex financial transactions that led to a near-collapse of the banking industry and a government bailout. Critics say it unnecessarily restricts big banks.
The Trump executive order will not specifically change this rule or end Cordray’s agency or job. But it will trigger a review almost certain to consider such outcomes. Meeting with corporate executives, the Trump White House has says it has heard complaints of over-regulation. Dodd-Frank, said a senior White House official, was “a massive piece of government overreach.”
Dodd-Frank may have even created “unconstitutional” government agencies, the official said. He did not specifically say he meant the CFPB, but Cordray’s agency is frequently criticized by Republicans as having an unconstitutional structure because of its independence.
Cordray, though presidential-appointed and Senate-confirmed, operates the agency independently, without an oversight board. He cannot be fired without cause, such as malfeasance. Dodd-Frank set it up that way.
A federal appeals court ruled recently that the structure is out of bounds and said the agency’s director should serve at the pleasure of the president. The decision is being appealed. Meanwhile some congressional Republicans are asking Trump to go ahead and fire Cordray.
The Trump executive order gives no time frame on this review but directs the Treasury secretary to “go out and see what can be done,” the senior official said That includes looking at possible rule changes or personnel actions.
Asked it that could mean ending the bureau, the official said, “Everything is going to be looked at.”
Asked if could mean firing Cordray, he repeated that “there’s a variety of ways” to deal with whatever the review concludes.
