CFPB Faces Dual Lone-Star Threats

by devteam August 21st, 2015 | Share

The eyes of Texas are upon the Consumer Financial ProtectionrnBureau – and not in a kindly way.  Tworndifferent actions out of Texas are challenging the very existence of thernagency.  The latest edition of the Housing News Report from RealtyTracrnreported on each without tying them together or linking them to earlierrnactions.  We took a closer look.</p

In the first action, two Texas lawmakers have introducedrnbills into the U.S. House and Senate that would completely abolish thernagency.  Representative John Ratcliffernand Senator Ted Cruz are the sponsors of the HR 3118 and S 1804 respectively, eachrnnicknamed the Repeal CFPB Act. According to Ratcliffe, it wouldrneffectively repeal Title X of the Dodd Frank Wall Street Reform and ConsumerrnProtection Act which established the Bureau. rnThe house bill has 62 co-sponsors but none in the Senate.</p

In an opinion piece written for the WashingtonrnTimes Ratcliffe said the need for his bill is clear and recounts what hernsays are problems created by the agency in his home district, most focusedrnaround costs to local financial institutions in complying with newrnregulations.  “Perhaps most troubling isrnthe fact that the CFPB is completely unaccountable to Congress andrnthe American people,” he said. “The CFPB is not overseen by Congressrnthrough the annual appropriations process.” Its operating costs come from thernFederal Reserve budget which is not controlled by Congress and Ratcliff claimsrnthis makes CFPB “the least accountable regulatory agency in the federalrngovernment; a situation that invites regulatory excess and abuse.”</p

Ohio Senator Sherrod Brown, ranking member of the SenaternBanking Committee says Senate Democrats will fight to defend the agency.  RealtyTrac quotes his statement in which he saysrnCFPB has proved over and over that its creation was one of the big successrnstories of Wall Street Reform.  “It has returned $10.1 billion to the pocketsrnof 17 million consumers. It has fined countless companies for egregiousrnconsumer abuses, including credit card companies secretly adding on unwantedrnproducts, phone companies cramming fees onto consumers’ bills, or mortgage servicersrnand lenders illegally foreclosing on homeowners and service members.”</p

The second attempt on its life and probably a more serious</bone emerged out of Texas by way of a law suit, State National Bank of Big Spring v Lew, which challenges thernconstitutionality of CFPB on multiple grounds. rnThe small Texas bank argues that the structure of the agency with arnsingle head, currently Director Richard Cordray, differs from the multi-memberrncommission form used in other independent agencies.  It thus lacks the requisite executive branchrnoversight and is unconstitutional.</p

A little background here for those who don’t remember the troubledrnhistory of Cordray’s appointment.  When CPBPrnwas established, Dodd-Frank Act opponents were adamant that they would notrnconfirm the appointment of anyone as its director.  The Senate also refused to appoint any newrnmembers to the National Labor Relations Board which was operating three membersrnshort. Although President Obama appointed three NLRB members and Cordray andrnall were favorably voted out of committee full confirmation Senate votes werernrepeatedly blocked. </p

The impasse lasted until, during a Senate Christmas/New Year’srnvacation at the beginning of 2012 the President made recess appointments of allrnfour.  Recess appointments are permittedrnby the Constitution and several hundred such appointments have been made overrnthe years but these four were immediately challenged, on multiple technicalrngrounds, in six separate lawsuits including BigrnSpring.  </p

The suits met varying degrees of success in the court withrnseveral tossed out by courts as lacking standing.  One suit that specifically addressed thernCordray appointment (NoelrnCanning v NLRB) was upheld in a lower court but in January 2013rnthree judges in this same DC court declared the appointment of the three NLRBrnmembers as unconstitutional.  SincernCordray’s appointment was made the same day and in the same way it was assumedrnthe ruling, if upheld, would apply to his as well. </p

A Senate/White House compromise allowed all four appointeesrnto be confirmed later that year, but the BigrnSpring suit which had earlier by rejected by lower courts as withoutrnstanding ultimately found a friend in the U.S. Court of Appeals for thernDistrict of Columbia.  On July 24 therncourt’s three judged found unanimously for the plaintiff which allows the lawrnsuit to proceed. The court also gave the bank standing to challenge the 2012rnrecess appointment of Cordray.</p

When the Canning</iruling came down, Ballard & Spahr, a law firm we have covered many times asrnit addressed CFPB issues, held a seminar on that ruling, covered here.rn (The firm’s Keith R. Fisher, incidentallyrnrather thoroughly dissected the merits of the Big Spring lawsuit in anrnarticle written around the time the suit was originally filed.)</p

The law firm felt a challenge to Cordray’s appointment raisedrnthe possibility of major disruptions extending far beyond changing the office letterhead;rnto whit that all actions taken by the Bureau under his recess appointment couldrnbecome invalid.  However they stressedrnthat, should Cordray’s appointment be confirmed by the Senate he could reaffirmrnthose actions and all would be well.  Wernpresume he has performed that step.</p

The seminar also looked at how CFPB’s powers are conferred.rnThis makes us wonder what happens if the current plaintiffs are successful pursuingrntheir ultimate quest. The firm said Subtitle F of Title X transfers consumerrnprotection powers from existing federal regulatory agencies to CFPB but most ofrnits powers are set forth elsewhere in Title X.  Ballard and Spahr argued that any powers grantedrnto CFPB that OCC, FDIC, or others did not previously hold could not invest inrnCFPB if it did not have a confirmed director. rn</p

That issue is resolved, but what happens should CFPB orrnTitle X be invalidated by the courts or, less likely, be eliminated by the Ratcliffe/Cruzrnbill?  The previously existing powersrnwould, we assume, revert back to other agencies but what happens to the othersrnspecifically invested in CFPB by Dodd Frank. rnWould there be no more enforcement actions against non-banks such asrncredit reporting bureaus, credit cards, and payday lenders?  What happens to the enforcement actions andrnthe millions of dollars in penalties agreed to under those actions?  And what happens to all of those rules and regulationsrnwhich financial institutions have lobbied heavily to prevent or alter but onrnwhich they have spent heavily in time and treasure in order to comply?

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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