Experts, industry leaders and lawmakers dissect appeals court action over CFPB

CARY, N.C. - 

Two attorneys who spent part of their legal careers with the Consumer Financial Protection Bureau and are now in private practice described how the regulator can claim some victories since the latest federal court action deemed the agency is constitutional.

However, these experts also pointed out the opinions shared by the D.C. Circuit Court of Appeals left the CFPB with some ongoing challenges.

Lucy Morris is a partner with Hudson Cook and a founding member of the CFPB Implementation Team that organized the CFPB after passage of the Dodd-Frank Act. Morris served as a CFPB deputy enforcement director for four years and shared her assessment of the ruling that arrived on Wednesday.

“It affirms the CFPB’s independence as a consumer watchdog and shows that the CFPB is here to stay,” Morris said. “At the same time, the opinion represents a setback for the bureau because it reinstates the earlier circuit opinion on the merits, including the ruling against the CFPB that it is subject to the statute of limitations in its administrative forum. 

“It also means that President Trump will have the opportunity to name a new director who will be able to remain in place for the full term, regardless of what happens in the next presidential election,” Morris continued in a message to SubPrime Auto Finance News.

Ori Lev is a partner in Mayer Brown’s Washington D.C., office and a member of the firm’s financial services regulatory and enforcement practice and the consumer financial services group. Like Morris, Lev also was a deputy enforcement director at the CFPB and also led the office of enforcement at the Office of Foreign Assets Control (OFAC).

In a message to SubPrime Auto Finance News, Lev began by explaining where the court seemed to agree with former CFPB director Richard Cordray with regard to Real Estate Settlement Procedures Act (RESPA), the regulation at the heart of this case involving the bureau against PHH Corp.

It’s perhaps a point that might be most interesting to auto finance companies, especially ones that have felt the wrath of the bureau’s enforcement.

“The one thing that everyone seems to agree on — including those judges who think Cordray’s interpretation of RESPA was correct — is that an agency cannot seek penalties for past conduct that violates a novel legal interpretation first advanced in an enforcement case,” Lev said.

“That is, ‘regulation by enforcement’ is OK as a way to announce new legal principles, but it can’t be a basis to penalize past conduct, because of due process concerns,” he added.

More industry and consumer advocate reaction

Richard Hunt, president and chief executive officer of the Consumer Bankers Association (CBA), shared his assessment of the court’s opinion.

“We applaud the court’s decision to repeal the amplified penalty on PHH, which undermined the longstanding application of RESPA,” Hunt said.

“While the court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the bureau’s long-term credibility,” he continued.

“Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection and would establish transparency, diversity of thought, additional industry insight and rule makings beneficial to consumers, the industry and the economy,” he went on to say.

Allied Progress executive director Karl Frisch also cheered what the appeals court did, but for much different reasons.

“This isn’t just a victory for the Consumer Financial Protection Bureau. This is a victory for consumers everywhere,” Frisch said. “The D.C. Circuit has soundly rejected attempts by Wall Street special interests to cripple the Bureau by challenging its constitutionality.

“Equally important, the court has reaffirmed the CFPB’s independence from the Trump administration, rejecting the notion that a president should be able to replace the agency’s director without cause. The majority decision called this case a ‘wholesale attack on independent agencies’ and we couldn’t agree more,” he continued.

“Beyond this decision, the Trump administration’s attack on Consumer Bureau continues. An affront to the very notion of an independent agency free from executive interference, Trump has installed Mick Mulvaney, a current member of his administration, to serve part-time as ‘acting director,” Frisch went on to say.

“While this case is an important victory, the fight continues to protect consumers and defend the mission of the CFPB to hold big banks, predatory lenders and other financial bad actors accountable,” he added.

Lawmaker response

Meanwhile, U.S. House Financial Services Committee chairman Jeb Hensarling, a Texas Republican, expressed his regret the court didn’t find the CFPB unconstitutional. Hensarling is an outspoken CFPB detractor and clashed with Cordray several times during the semiannual hearing on Capitol Hill.

“I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling in short order,” Hensarling said.

“In the meantime, I take great solace in the fact that Mick Mulvaney can use his unchecked, unilateral powers to continue the agency’s transformation into one that will, as he said, ‘exercise [its] statutory authority to enforce the laws of this nation ... execute the statutory mandate of the bureau to protect consumers’ and go no further,” Hensarling continued.

“Even though I have total confidence in acting director Mulvaney’s vision, the fact remains that no one person in America — especially someone who is unelected — should have the authority to unilaterally control whether working Americans can get a mortgage or a checking account,” Hensarling went on to say.

“The bureau’s consumer protection mission is important, but no government agency — no matter how well-intentioned — should be able to evade common sense checks and balances that are necessary for accountability,” he added. “Republicans stand ready to work with Democrats to reform the CFPB into a law enforcement agency that truly protects consumers and is accountable to the people’s elected representatives.”

Hensarling’s colleague on the House Financial Services Committee took a much different view. Rep. Maxine Waters is the ranking member and a Democrat from California.

“Today, the full U.S. Court of Appeals for the District of Colombia Circuit confirmed what we have always known: the Consumer Bureau is constitutional and is here to stay,” Water said. “This is an important ruling for America’s consumers and should send a clear warning to predatory actors that despite the unlawful actions of the Trump Administration toward the Consumer Bureau, the courts can clearly and correctly interpret congressional intent.

“I am pleased that the court followed established precedent and preserved the structure of the agency that Congress envisioned,” she continued.

“When Congress drafted and passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, we intentionally created a strong, independent Consumer Bureau to better protect consumers after millions were ripped off by predatory lenders in the lead up to the 2008 financial crisis,” Waters went on to say. “The independence of the Consumer Bureau is essential to ensure that the agency can operate as a tough regulator that stands up for consumers.”

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