Since its inception, the Consumer Financial Protection Bureau (consumerfinance.gov) has had many advocates and many critics. While many point to the CFPB’s staunch protection of consumers, some have argued that the independent agency has too much power with little oversight. And this week’s opinion from the United States Court of Appeals in the case of PHH Corp v. Consumer Financial Protection Bureau seems to side with CFPB’s detractors – and highlights liberty, housing, private citizens.
As you know, the CFPB was created in the aftermath of the financial crisis by the passing of Dodd-Frank in 2010. Dodd-Frank (also known as the Dodd–Frank Wall Street Reform and Consumer Protection Act) came at a time when politicians wanted to reign in financial institutions and businesses. In order to carry out financial reform, Dodd-Frank created a number of oversight boards and agencies in an expansive piece of legislation that covered many areas spelled out in over 2,000 pages. And even in its behemoth size, Dodd-Frank left much of the reform regulations to be written by agencies and its unelected officials – including the CFPB.
The CFPB has issued many new rules and have fined many banks and lenders. Some of the new rules have fundamentally changed the relationship between the consumer and the bank. For example, the TRID (TILA-RESPA Integrated Disclosure) rule that went into effect this year which not only changed how settlements are conducted but can levy stiff a penalty for each violation.
The case PHH Corp v. Consumer Financial Protection Bureau, appeared as if a seemingly “bad” mortgage lender was pushing back against fines and penalties for doing wrong. (PHH Corp was fined $108 million by the CFPB for mortgage re-insurance deals with company affiliates, even though it claimed to have followed HUD’s previous rule of paying a reasonable market rate.) But there’s more to this story, and it highlights exactly the what the CFPB’s critics have complained about – the CFPB’s independence from oversight and guidance. The case is about the CFPB’s authority to change the rule and retroactively apply it to PHH Corp.
Judge Kavanaugh wrote: “This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”
He continued to say that “…the Director of the CFPB possesses enormous power over American business, American consumers, and the overall U.S. economy. The Director unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law…That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.”
The result is that the CFPB will continue to operate and go after bad actors in the financial world. However, the recent appellate ruling will likely change the scope and focus of its operations, as the CFPB will be under the “ultimate supervision and direction of the President.” This case and the opinions of the Court can be found here (https://www.cadc.uscourts.gov/internet/opinions.nsf).
Copyright © Dan Krell
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