Tag Archives: Director Cordray

Trump Wins Another Round in CFPB Fight

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OMB Director Mick Mulvaney

Judge Gardephe (SDNY) ruled against the Lower East Side People’s Federal Credit Union in their suit against President Trump and Mick Mulvaney over the control of the Consumer Financial Protection Bureau. (Case 1:17-cv-09536-PGG, filed February 1, 2018) Trump has sought to install Mulvaney, his OMB Director, as the Acting Director of the CFPB. I submitted an amicus brief on behalf of the Credit Union along with a number of other academics who write about the consumer financial services sector but the judge did not reach the merits of the case. Rather, the judge found that the Credit Union did not have standing to bring the lawsuit. Standing, for you non-lawyers out there, refers to a showing by the plaintiff that it has enough of a connection to, as well as harm from, an action that the plaintiff is challenging to be the basis for the lawsuit.

The dispute over the leadership of the CFPB is still ongoing as Leandra English, the Deputy Director appointed by former Director Cordray, is still pressing the suit that she filed in the District Court for the District of Columbia. In that suit, English claims that she is the rightful Acting Director of the CFPB. While she lost in the District Court, she has filed an appeal to the Court of Appeals for the District of Columbia. That case turns on the complex interaction between the Dodd-Frank Act and the Federal Vacancies Reform Act, so it is hard to predict what the Court of Appeals will end up doing in that case.

In the short term, it means that the CFPB is somewhat rudderless as two people claim to lead the agency. This condition will likely prevail until President Trump gets a permanent Director confirmed by the Senate.

Evolution of the CFPB?

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image by Vector Open Stock

The Mortgage Bankers Association has issued a white paper, CFPB 2.0: Advancing Consumer Protection. The Executive Summary reads, in part,

In its first years, the Bureau’s regulatory expertise was largely consumed by the need to meet deadlines on specific rules required under the Dodd-Frank Act, and its supervision program took time to stand up. In its first years, the Bureau spent relatively little time providing guidance to industry on its expectations.

The combination of aggressive enforcement and the absence of regulatory guidance evolved into a regime of “regulation by enforcement.” Director Richard Cordray has argued that the Bureau’s enforcement regime provides “detailed guidance for compliance officers” and that it “would be ‘compliance malpractice’ for the industry not to take careful bearings from [consent] orders about how to comply with the law.” Unfortunately, the reality is that the Bureau’s enforcement program offers only fragmentary glimpses of how the Bureau interprets the laws and regulations it enforces.

This paper explains why authoritative guidance is still needed. Rather than seeking to provide the equivalent of “detailed guidance” through enforcement, the Bureau should simply provide detailed guidance. Such guidance can be provided in a host of forms, including advisory opinions, bulletins, no-action letters, statements of policy, and answers to frequently asked questions. In contrast to enforcement orders, such guidance can be proactive, efficient, clear and comprehensive, and can allow for stakeholder input and revision when facts and circumstances warrant. (v)

It is hard to argue with the MBA that it is better to regulate by supervision than by enforcement as that allows regulated companies to design policies that meet with their regulatory requirements. As the CFPB matures, I would expect that this would happen naturally. Indeed, the white paper acknowledges the challenges of standing up the CFPB in its first few years of existence that led to the early emphasis on enforcement.

I wonder a bit about the timing of this report. The MBA describes the CFPB as being at a “crossroads.” (19) That crossroads may refer to the Republican control of Congress and the Executive Branch, it may refer to the soon-to-be ending term of Director Cordray, or it may refer to both of those developments. So I wonder if this report is meant to provide some intellectual cover to bigger changes that would reduce the CFPB’s role as America’s consumer protection sheriff. Let’s see where the MBA comes down on those bigger changes once their floated in the coming months. Are they advocating tweaks to the way the CFPB does business or are they looking for some kind of revolution in the regulation of consumer protection?

 

Gorsuch and the CFPB

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photo provided byUnited States Court of Appeals for the Tenth Circuit

Judge Gorsuch

Bankrate.com quoted me in Supreme Court Pick Could Spell Trouble for the CFPB. It opens,

President Donald Trump’s first Supreme Court pick has been identified as the “most natural successor” to the late Justice Antonin Scalia, whom he would replace.

Neil Gorsuch, 49, a judge on the 10th Circuit Court of Appeals in Denver, is said to share many of Scalia’s beliefs and his judicial philosophy. That could tip the high court back toward the 5-4 conservative split it held during controversial cases prior to Scalia’s death, although Justice Anthony Kennedy will remain a liberal swing vote on certain social issues before the court.

Gorsuch’s big judicial decisions have favored religious freedom over government regulation and state’s rights over the power of the federal government.

But how might that impact consumers or their wallets directly?

“I think with a judge like Gorsuch, you can see there probably will be a tendency in that direction to dissuade innovation,” says David Reiss, a law professor at Brooklyn Law School and the academic program director for the Center for Urban Business Entrepreneurship.

That could mean the Consumer Financial Protection Bureau, whose unique management structure a judge on the U.S. Court of Appeals for the D.C. Circuit last fall called unconstitutional, could face an obstacle on the bench should the legal fight over its construction ever reach the Supreme Court.

Judge Brett Kavanaugh, who wrote the majority opinion for the D.C. circuit panel, said because this independent agency is headed by a director whom the president cannot fire at will – and not, say, a set of commissioners like other agencies within the government – it is a threat to individual liberty.

“In short, when measured in terms of unilateral power, the director of the CFPB is the single most powerful official in the entire U.S. government, other than the president,” Kavanaugh wrote. “In essence, the director is the president of consumer finance.”

How Gorsuch May Rule

Supporters of the bureau are trying to get a hearing before the full U.S. Court of Appeals, but the issue could well wind up in front of the U.S. Supreme Court – that is if Congress doesn’t take action first.

Legal scholars say should Gorsuch win Senate confirmation he is unlikely to look favorably on the bureau’s structure.

Indeed, Gorsuch is likely to “echo the views of Judge Kavanaugh,” Melissa Malpass, senior legal editor for consumer regulatory finance at Thompson Reuters Practical Law, said in an email.

“Judge Gorsuch, through recent decisions, has expressed his disfavor with permitting government agencies to not only determine what the law is, but also to interpret and re-interpret the law as they see fit, often based on the political climate,” Malpass says.

If the Supreme Court were to uphold the Kavanaugh ruling, it “may, in effect, destroy the CFPB as we know it, and that will have an effect on consumers,” Reiss says.

Not everyone, though, thinks restructuring the CFPB as a commission-led agency like the Federal Communications Commission, for example, would be bad for consumers.

Gorsuch’s Path to the High Court

Democrats, still stung over the Senate’s refusal to consider Merrick Garland, then-President Barack Obama’s pick to succeed Scalia, could try to block Gorsuch’s nomination. Under current Senate rules, at least eight Democrats will need to cross the aisle to prevent a filibuster of the appointment.

Gorsuch, who was confirmed for his current post in 2006 by Senate voice vote, has won widespread acclaim in Republican circles. He also received a vote of confidence from a former Obama administration official.

“I think the Democrats are going to ask questions to determine if the nominee is outside what they call the political mainstream,” Reiss says. “We know this battle will be a brutal one, almost definitely because of the treatment of Merrick Garland’s nomination under the Obama administration.”

Is the CFPB Unconstitutional?

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DepositAccounts.com quoted me in Old Court Case Puts Consumer Financial Protection Bureau on Hot Seat. It reads, in part,

here is such a thing as a second act. Even court cases can be resurrected from the dead. Two years after State National Bank of Texas called the Consumer Financial Protection Bureau on the carpet, challenging its constitutionality in a case that was dismissed by a federal court, the D.C. Circuit court breathed new life into the debate when it reopened the case and concluded that State National Bank has legal legs to stand on and can sue, despite the fact that it is not directly supervised by the agency.

Although the D.C. Circuit court didn’t buy all of the bank’s claims, the court didn’t dismiss the bank’s claims that the CFPB should be run by a commission, instead of a single director, nor did it shoot down the bank’s contention that CFPB’s Director, Richard Cordray was improperly appointed during a Congressional recess.

“The proper ruling is that a recess appointment requires the Senate to be in recess. The Senate should determine whether it is in recess by its own rules. So a unilateral decision by the executive branch that the Senate is in recess should be disregarded,” says lawyer David Rubenstein who owns CreditShout.com and CreditForums.com.

“The solicitor general’s office will argue that this is a political question and should not be decided by the courts. If the recess appointment is struck down, then any rules and regulations passed by the CFPB also need to be struck down. Courts generally try to avoid this kind of mess. So you may see some sort of compromise,” he adds.

*     *     *

Why the case matters

As for this case, scoffs [U.S. PIRG consumer program director] Mierzwinski, “Its proponents climbed a very low bar (standing to sue) to get the case reopened. Most experts on both sides think the odds of them actually winning are very low – achieving their sketchy Constitutional claims on the merits is an extremely high bar.”

The case is significant, says Brooklyn Law School professor David Reiss, “It is opening up a new can of worms for the CFPB and the consumer finance industry. But the court defers on the meat of the matter as it remands the case ‘to the District Court for it to consider the merits of the claim.’”

Reiss contends that cases such as this increase uncertainty for regulated companies, and for their customers. “Until the case is decided and the new regulatory environment becomes clear, we should expect more caution in the development of new consumer finance products and services,” says Reiss.