The eyes of Texas are upon the Consumer Financial Protection Bureau - and not in a kindly way. Two different actions out of Texas are challenging the very existence of the agency. The latest edition of the Housing News Report from RealtyTrac reported on each without tying them together or linking them to earlier actions. We took a closer look.
In the first action, two Texas lawmakers have introduced bills into the U.S. House and Senate that would completely abolish the agency. Representative John Ratcliffe and Senator Ted Cruz are the sponsors of the HR 3118 and S 1804 respectively, each nicknamed the Repeal CFPB Act. According to Ratcliffe, it would effectively repeal Title X of the Dodd Frank Wall Street Reform and Consumer Protection Act which established the Bureau. The house bill has 62 co-sponsors but none in the Senate.
In an opinion piece written for the Washington Times Ratcliffe said the need for his bill is clear and recounts what he says are problems created by the agency in his home district, most focused around costs to local financial institutions in complying with new regulations. "Perhaps most troubling is the fact that the CFPB is completely unaccountable to Congress and the American people," he said. "The CFPB is not overseen by Congress through the annual appropriations process." Its operating costs come from the Federal Reserve budget which is not controlled by Congress and Ratcliff claims this makes CFPB "the least accountable regulatory agency in the federal government; a situation that invites regulatory excess and abuse."
Ohio Senator Sherrod Brown, ranking member of the Senate Banking Committee says Senate Democrats will fight to defend the agency. RealtyTrac quotes his statement in which he says CFPB has proved over and over that its creation was one of the big success stories of Wall Street Reform. "It has returned $10.1 billion to the pockets of 17 million consumers. It has fined countless companies for egregious consumer abuses, including credit card companies secretly adding on unwanted products, phone companies cramming fees onto consumers' bills, or mortgage servicers and lenders illegally foreclosing on homeowners and service members."
The second attempt on its life and probably a more serious one emerged out of Texas by way of a law suit, State National Bank of Big Spring v Lew, which challenges the constitutionality of CFPB on multiple grounds. The small Texas bank argues that the structure of the agency with a single head, currently Director Richard Cordray, differs from the multi-member commission form used in other independent agencies. It thus lacks the requisite executive branch oversight and is unconstitutional.
A little background here for those who don't remember the troubled history of Cordray's appointment. When CPBP was established, Dodd-Frank Act opponents were adamant that they would not confirm the appointment of anyone as its director. The Senate also refused to appoint any new members to the National Labor Relations Board which was operating three members short. Although President Obama appointed three NLRB members and Cordray and all were favorably voted out of committee full confirmation Senate votes were repeatedly blocked.
The impasse lasted until, during a Senate Christmas/New Year's vacation at the beginning of 2012 the President made recess appointments of all four. Recess appointments are permitted by the Constitution and several hundred such appointments have been made over the years but these four were immediately challenged, on multiple technical grounds, in six separate lawsuits including Big Spring.
The suits met varying degrees of success in the court with several tossed out by courts as lacking standing. One suit that specifically addressed the Cordray appointment (Noel Canning v NLRB) was upheld in a lower court but in January 2013 three judges in this same DC court declared the appointment of the three NLRB members as unconstitutional. Since Cordray's appointment was made the same day and in the same way it was assumed the ruling, if upheld, would apply to his as well.
A Senate/White House compromise allowed all four appointees to be confirmed later that year, but the Big Spring suit which had earlier by rejected by lower courts as without standing ultimately found a friend in the U.S. Court of Appeals for the District of Columbia. On July 24 the court's three judged found unanimously for the plaintiff which allows the law suit to proceed. The court also gave the bank standing to challenge the 2012 recess appointment of Cordray.
When the Canning ruling came down, Ballard & Spahr, a law firm we have covered many times as it addressed CFPB issues, held a seminar on that ruling, covered here. (The firm's Keith R. Fisher, incidentally rather thoroughly dissected the merits of the Big Spring lawsuit in an article written around the time the suit was originally filed.)
The law firm felt a challenge to Cordray's appointment raised the possibility of major disruptions extending far beyond changing the office letterhead; to whit that all actions taken by the Bureau under his recess appointment could become invalid. However they stressed that, should Cordray's appointment be confirmed by the Senate he could reaffirm those actions and all would be well. We presume he has performed that step.
The seminar also looked at how CFPB's powers are conferred. This makes us wonder what happens if the current plaintiffs are successful pursuing their ultimate quest. The firm said Subtitle F of Title X transfers consumer protection powers from existing federal regulatory agencies to CFPB but most of its powers are set forth elsewhere in Title X. Ballard and Spahr argued that any powers granted to CFPB that OCC, FDIC, or others did not previously hold could not invest in CFPB if it did not have a confirmed director.
That issue is resolved, but what happens should CFPB or Title X be invalidated by the courts or, less likely, be eliminated by the Ratcliffe/Cruz bill? The previously existing powers would, we assume, revert back to other agencies but what happens to the others specifically invested in CFPB by Dodd Frank. Would there be no more enforcement actions against non-banks such as credit reporting bureaus, credit cards, and payday lenders? What happens to the enforcement actions and the millions of dollars in penalties agreed to under those actions? And what happens to all of those rules and regulations which financial institutions have lobbied heavily to prevent or alter but on which they have spent heavily in time and treasure in order to comply?