Who’s Afraid Of The CFPB?

12266_scream Who's Afraid Of The CFPB? BLOG VIEW: On June 21, a lawsuit was filed in U.S. District Court in Washington, D.C., that challenged the constitutionality of the Consumer Financial Protection Bureau (CFPB), along with the legality of the Jan. 4 presidential recess appointment that put Richard Cordray into the agency's directorship. The lawsuit was filed by Big Spring, Texas-based State National Bank, along with the 60 Plus Association and the Competitive Enterprise Institute.

In announcing the lawsuit, Jim Purcell, CEO of State National Bank, openly stated what very few people in the financial services industry are willing to say on the record.

‘No other federal agency or commission operates in such a way that one person can essentially determine who gets a home loan, who can get a credit card and who can get a loan for college,’ said Purcell. ‘Dodd-Frank effectively gives unlimited regulatory power to [the CFPB] with a director who is not accountable to Congress, the president or the courts.’

Indeed, the depth of the CFPB's regulatory power has been on full display in the past couple of weeks, with its release of a seemingly endless skein of proposed rules that would redefine how lenders and servicers do their jobs. The fact that these rules are being created by non-elected bureaucrats rather than by elected lawmakers gives you an idea of Washington's warped balance of power.

However, to date, the bank and the two advocacy groups that filed the lawsuit are standing by themselves in this endeavor. No other financial services institution, trade association or financial advocacy group is joining their campaign. Indeed, no one within the industry wants to publicly offer even the slightest bit of support for this challenge.

Why is everyone so quiet? Well, for starters, the power that the CFPB yields is without precedent, and there is a genuine fear that the agency will exercise its authority with an acute display of vindictiveness. After all, Cordray and his lieutenants have spoken loudly and too often about how lenders and servicers are supposedly offering ‘unfair, deceptive and abusive practices’ to their current customers.

And for any institution that falls victim to its wrath, there is no easy avenue for seeking assistance. C. Boyden Gray, the White House counsel to former President George H.W. Bush, is representing the plaintiffs in court, and he cogently observes that the CFPB is a combination of judge, jury and executioner.

‘If you're a poor beleaguered financial institution â�¦ and you are set upon by this bureau, you have no access to the democratic system – to the White House, the Congress or the courts – to appeal what's happened,’ says Gray.

There is also the fear that the CFPB will not be easily removed through the political process. The potential re-election of President Obama will ensure that the CFPB is around for at least the next four years, and the White House is on record saying that it will fight the lawsuit in court.

But don't expect Mitt Romney to ride to the rescue. In May, Romney's economic advisor Glenn Hubbard claimed that the Republican candidate may either dismantle the CFPB or realign the agency outside of the Federal Reserve – those are two very different strategies, of course, and it is unlikely that either would be achieved unless a Romney presidency is mirrored by Republican control of both chambers of Congress.

However, Hubbard may have just been blowing smoke rings – Romney has said nothing on the campaign trail about the CFPB. Furthermore, the controversial budget plan created by Romney's running mate Paul Ryan offers no clue on whether he would permanently pull the plug on the agency.

And then, there is the reality that this lawsuit can drag on for a long time. The three plaintiffs are clearly in this for the long haul, and their emotional and financial commitments require a fortitude that many entities are not able to offer at this time.

For its part, the CFPB is laughing off the lawsuit. Jen Howard, a spokesperson for the agency, flippantly claimed that the lawsuit ‘appears to dredge up old arguments that have already been discredited.’

Actually, none of the arguments in the lawsuit have been discredited. The fact is that too many people are openly afraid to speak the truth about how the CFPB abrogates the constitutional system of checks-and-balances by placing massive power in a single agency that is not accountable to the legislative or executive branches. Fortunately, there are a few brave souls who are willing to do what is right and harpoon the regulatory leviathan before it can create permanent damage to an already-weakened economy.

– Phil Hall, editor, MortgageOrb

(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)

(Photo courtesy National Gallery, Oslo)


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