What Is The CFPB’s Ultimate Fate?

MORNING COMMUTE: I was at the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo 2017 in Dallas this past week, and, somewhat embarrassingly, I am just now getting caught up.

But first, the music this morning was Jethro Tull’s timeless classic “Aqualung.”

What can I say – a top 10 favorite album by one of my top 10 favorite bands. Jethro Tull was one of the bands that, like Rush, successfully bridged the divide between progressive rock and mainstream rock. That is to say, they had plenty of appeal for progressive rock fans seeking depth and complexity, while, at the same time, keeping the music melodic and accessible. As such, I find “Aqualung” just as much fun to listen to while driving as it is on the headphones late at night.

As I was driving this morning, it occurred to me what a major influence guitarist Martin Barre had on the band’s overall sound, especially on this record. This was only his third studio release with the band. I think it’s a shame that Barre and founder/principal songwriter Ian Anderson don’t perform together anymore – but, at the same time, I respect the fact that not all working relationships are built to last. One thing for which I think Barre should be grateful is this: His guitar chops sound just as good today as they did when this record came out, whereas Anderson’s vocal chords are another story.

So, what is the Consumer Financial Protection Bureau’s (CFPB) ultimate fate? Even with all of the recent news reports on court rulings and various proposals to dismantle or weaken the agency, it’s still kind of hard to say for sure.

Last Thursday, the U.S. Court of Appeals for the District of Columbia Circuit granted the CFPB’s request to rehear the PHH Mortgage case “en banc,” meaning that the entire court will rehear the case rather than the three judges who ruled in October that the bureau’s single-leadership structure was unconstitutional and, further, that the bureau’s allegations that PHH violated RESPA should be tossed.

That means that the earlier decision is vacated – and the CFPB can continue to operate as it did prior to the ruling. It also means that President Donald Trump cannot fire Richard Cordray, director of the bureau, unless it’s “for cause.”

The court has set May 24 as the date for oral arguments.

In rehearing the case, the court is expected to determine whether the CFPB’s structure as a single-director independent agency is consistent with Article II of the U.S. Constitution and, if not, whether the remedy is to sever the for-cause provision of the statute.

More importantly, the court will have to decide whether the issue of the bureau’s leadership structure and the constitutional question it raises should be heard as part of the case.

Meanwhile, there are two bills proposing to dismantle the CFPB now before Congress. Last week, Sen. Ted Cruz, R-Texas, and Rep. John Ratcliffe, R-Texas, introduced a bill that would abolish the CFPB by repealing Title X of the Dodd-Frank Wall Street Reform Act.

In addition, Sen. Mike Rounds, R-South Dakota, also introduced a bill that would, in effect, render the CFPB powerless by cutting off its funding from the Federal Reserve.

Currently, the CFPB operates as an independent agency and draws funding directly from the Fed. Rounds’ proposal, however, would amend the Consumer Financial Protection Act of 2010 to cut off the CFPB’s funding from the Fed. In addition, the proposal would require the CFPB to turn over all of the money it received in civil penalties to the Treasury Department.

“A product of the ill-advised Dodd-Frank Reform Act, the CFPB is an unaccountable regulatory agency run by un-elected bureaucrats, with no oversight from Congress,” Rounds says in a statement. “No unchecked federal agency should have the power to dramatically alter the financial choices of consumers through the rules it promulgates.”

In addition to these two proposals, a separate bill, the Consumer Financial Protection Bureau Accountability Act of 2017, introduced previously by a group of Republican senators, would bring the CFPB under the Congressional appropriations process instead of drawing its money directly from the Fed.

Then there is the Financial CHOICE Act, Rep. Jeb Hensarling’s plan to significantly or completely abolish Dodd-Frank (and, probably along with it, the CFPB), which is reportedly being revamped into “CHOICE Act 2.0,” which tweaks the original proposal and adds more specificity.

According to a CNBC report, the revamped CHOICE Act is “more aggressive” than the original version passed by the House Financial Services Committee last fall. The bill proposes to change the leadership structure of the bureau so that its director is a political appointee who can be dismissed “at will,” as opposed to the current structure, which calls for a single director who can only be fired “for cause.” The previous version of the CHOCE Act called for a five-member commission to lead the bureau.

The CNBC report cites a leaked memo that purportedly shows that the bill would strip the CFPB of its authority to bring cases against financial institutions under a provision known as unfair, deceptive and abusive practices. In addition, it would “eliminate databases of consumer complaints,” presumably the CFPB’s controversial consumer complaint database, which bureau officials say they use when deciding where to go and conduct examinations.

Of course, if the bureau ends up being dismantled, the complaint database would presumably go away, anyway. But if the CFPB happens to survive – even with its powers significantly curtailed – there’s plenty of folks in the mortgage industry who would like to see the consumer complaints database eliminated either way.


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