Tag: CFPB

CFPB Solicits Whistleblowers to Strengthen Enforcement of Consumer Financial Protection Laws

In its revamped whistleblower webpage, the CFPB is enlisting the help of whistleblowers to provide tips about the following issues:

  • Any discrimination related to consumer financial products or services or small businesses
  • Any use of artificial intelligence/machine learning models that is based on flawed or incomplete data sets, that uses proxies for race, gender, or other group characteristics, or that impacts particular groups or classes of people more than others;
  • Misleading or deceptive advertising of consumer financial products or services, including mortgages
  • Failure to collect, maintain, and report accurate mortgage loan application and origination data
  • Failure to provide or use accurate consumer reporting information
  • Failure to review mortgage borrowers’ loss mitigation applications in a timely manner
  • Any unfair, deceptive, or abusive act or practice with respect to any consumer financial product or service.

The CFPB has also announced that it seeks tips to help it combat the role of Artificial Intelligence in enabling intentional and unintentional discrimination in decision-making systems.  For example, a recent study of algorithmic mortgage underwriting revealed that Black and Hispanic families have been more likely to be denied a mortgage compared to similarly situated white families.

Proposed CFPB Whistleblower Reward Program

Currently, there is no whistleblower reward program at the CFPB and sanctions collected in CFPB enforcement actions do not qualify for SEC related action whistleblower awards.  In light of the success of the SEC’s Whistleblower Program as an effective tool to protect investors and strengthen capital markets, the CFPB requested that Congress establish a rewards program to strengthen the CFPB’s enforcement of consumer financial protection laws.

In September 2021, Senator Catherine Cortez Masto introduced the Financial Compensation for Consumer Financial Protection Bureau Whistleblowers Act (S. 2775), which would establish a whistleblowers rewards program at the CFPB similar to the SEC Whistleblower Program.  It would authorize the CFPB to reward whistleblowers between 10% to 30% of collected monetary sanctions in a successful enforcement action where the penalty exceeds $1 million.  And in cases involving monetary penalties of less than $1 million, the CFPB would be able to award any single whistleblower 10% of the amount collected or $50,000, whichever is greater.

The Financial Compensation for CFPB Whistleblowers Act is cosponsored by Chairman of the Senate Banking, Housing, and Urban Affairs Committee Senator Sherrod Brown and Senators Dick Durbin, Elizabeth Warren, Jeff Merkley, Richard Blumenthal, and Tina Smith. In the House, Representative Al Green introduced a companion bill (H.R. 5484).

A whistleblower reward program at the CFPB could significantly augment enforcement of consumer financial protection laws, including laws barring unfair, deceptive, or abusive acts and practices.  The CFPB has authority over a broad array of consumer financial products and services, including mortgages, deposit taking, credit cards, loan servicing, check guaranteeing, collection of consumer report data, debt collection associated with consumer financial products and services, real estate settlement, money transmitting, and financial data processing.  In addition, the CFPB is the primary consumer compliance supervisory, enforcement, and rulemaking authority over depository institutions with more than $10 billion in assets.

Hopefully, Congress will act swiftly to enact the Financial Compensation for CFPB Whistleblowers Act.

Protection for CFPB Whistleblowers

Although Congress did not establish a whistleblower reward program when it created the CFPB, it included a strong whistleblower protection provision in the Consumer Financial Protection Act of 2010 (CFPA).  The anti-retaliation provision of the Consumer Financial Protection Act provides a cause of action for corporate whistleblowers who suffer retaliation for raising concerns about potential violations of rules or regulations of the CFPC.

Workers Protected by the CFPA Anti-Retaliation Law

The term “covered employee” means “any individual performing tasks related to the offering or provision of a consumer financial product or service.”  The CFPA defines a “consumer financial product or service” to include “a wide variety of financial products or services offered or provided for use by consumers primarily for personal, family, or household purposes, and certain financial products or services that are delivered, offered, or provided in connection with a consumer financial product or service . . . Examples of these include . .. residential mortgage origination, lending, brokerage and servicing, and related products and services such as mortgage loan modification and foreclosure relief; student loans; payday loans; and other financial services such as debt collection, credit reporting, credit cards and related activities, money transmitting, check cashing and related activities, prepaid cards, and debt relief services.”

Scope of Protected Whistleblowing About Consumer Financial Protection Violations

The CFPA protects disclosures made to an employer, to the CFPB or any State, local, or Federal, government authority or law enforcement agency concerning any act or omission that the employee reasonably believes to be a violation of any CFPB regulation or any other consumer financial protection law that the Bureau enforces. This includes several federal laws regulating “unfair, deceptive, or abusive practices . . . related to the provision of consumer financial products or services.”

Some of the matters the CFPB regulates include:

  • kickbacks paid to mortgage issuers or insurers;
  • deceptive advertising;
  • discriminatory lending practices, including a violation of the Equal Credit Opportunity Act (“ECOA”);
  • excessive fees;
  • any false, deceptive, or misleading representation or means in connection with the collection of any debt; and
  • debt collection activities that violate the Fair Debt Collection Practices Act (FDCPA).

Some of the consumer financial protection laws that the CFPB enforces include:

  • Real Estate Settlement Procedures Act;
  • Home Mortgage Disclosure Act;
  • Equal Credit Opportunity Act;
  • Truth in Lending Act;
  • Truth in Savings Act;
  • Fair Credit Billing Act;
  • Fair Credit Reporting Act;
  • Electronic Fund Transfer Act;
  • Consumer Leasing Act;
  • Fair Debt Collection Practices Act;
  • Home Owners Protection Act; and
  • Secure and Fair Enforcement for Mortgage Licensing Act

Reasonable Belief Standard in Banking Whistleblower Retaliation Cases

The CFPA whistleblower protection law employs a reasonable belief standard.  As long as the plaintiff’s belief is reasonable, the whistleblower is protected, even if the whistleblower makes a mistake of law or fact about the underlying violation of a law or regulation under the CFPB’s jurisdiction.

Prohibited Retaliation

The CFPA anti-retaliation law proscribes a broad range of adverse employment actions, including terminating, “intimidating, threatening, restraining, coercing, blacklisting or disciplining, any covered employee or any authorized representative of covered employees” because of the employee’s protected whistleblowing.

Proving CFPA Whistleblower Retaliation

To prevail in a CFPA whistleblower retaliation claim, the whistleblower need only prove that his or her protected conduct was a contributing factor in the adverse employment action, i.e., that the protected activity, alone or in combination with other factors, affected in some way the outcome of the employer’s decision.

Where the employer takes the adverse employment action “shortly after” learning about the protected activity, courts may infer a causal connection between the two.  Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009).

Filing a CFPA Financial Whistleblower Retaliation Claim

CFPA complaints are filed with OSHA, and the statute of limitations is 180 days from the date when the alleged violation occurs, which is the date on which the retaliatory decision has been both made and communicated to the whistleblower.

The complaint need not be in any particular form and can be filed orally with OSHA. A CFPA complaint need not meet the stringent pleading requirements that apply in federal court, and instead the administrative complaint “simply alerts OSHA to the existence of the alleged retaliation and the complainant’s desire that OSHA investigate the complaint.” If the complaint alleges each element of a CFPA whistleblower retaliation claim and the employer does not show by clear and convincing that it would have taken the same action in the absence of the alleged protected activity, OSHA will conduct an investigation.

OSHA investigates CFPA complaints to determine whether there is reasonable cause to believe that protected activity was a contributing factor in the alleged adverse action.  If OSHA finds a violation, it can order reinstatement of the whistleblower and other relief.

Article By Jason Zuckerman of Zuckerman Law

For more financial legal news, click here to visit the National Law Review.

© 2021 Zuckerman Law

CFPB Suit Against Student Loan Trusts Dismissed

On March 26, 2021, Judge Maryellen Noreika of the U.S. District Court for the District of Delaware dismissed a lawsuit brought by the Consumer Financial Protection Bureau (“CFPB”) in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts,1 finding, inter alia, that the CFPB’s suit was constitutionally defective due to the CFPB’s untimely attempt to ratify the prosecution of the litigation in the wake of the Supreme Court’s decision in Seila Law LLC v. Consumer Financial Protection Bureau.  This case has been closely watched by many participants in the structured finance industry, because the litigants had disputed over the question of whether the trusts at issue in the litigation are “covered persons” liable under the Consumer Financial Protection Act despite their status as passive securitization trust entities—a question that has important and wide-reaching implications for the structured finance markets.

Background

The National Collegiate Student Loan Trusts (the “Trusts”) hold more than 800,000 private student loans through 15 different Delaware statutory trusts created between 2001 and 2007, totaling approximately $12 billion.  The loans originally were made to students by private banks.  The Trusts provided financing for the student loans by selling notes to investors in securitization transactions.  The Trusts also provided for the servicing of and collection on those student loans by engaging third-party servicers.  However, the Trusts themselves are passive special purpose entities lacking employees or internal management; instead, to operate, the Trusts relied on various interlocking trust-related agreements with multiple third-party service providers to—among other things—administer each of the Trusts, determine the relative priority of economic interests in the Trusts, and service the Trusts’ loans.

On September 4, 2014, the CPFB issued a civil investigative demand (“CID”) to each of the Trusts for information concerning thousands of allegedly illegal student loan debt collection lawsuits used to collect on defaulted loans held by the Trusts.  On May 9, 2016, the CFPB alerted the Trusts to the fact that the CFPB was considering initiating enforcement proceedings against the Trusts based on the collection lawsuits through a Notice and Opportunity to Respond and Advice (“NORA”).  A few weeks later, the law firm McCarter & English, LLP (“McCarter”), purporting to represent the Trusts, submitted a NORA response to the CFPB.  McCarter and the CFPB then proceeded to negotiate a Proposed Consent Judgment to resolve the CFPB’s investigation of the Trusts.

The Litigation

On September 18, 2017, the CFPB filed suit against the Trusts in Delaware federal court (the “Court”), alleging that the Trusts had violated the Consumer Financial Protection Act of 2010 (the “CFPA”) by engaging in unfair and deceptive practices in connection with their servicing and collection of student loans.  Although the CFPB acknowledged that the Trusts had no employees and that the alleged misconduct resulted from actions taken by the Trusts’ servicers and sub-servicers in the course of their debt collection activities—rather than any actions taken by the Trusts themselves—the CFPB nonetheless named only  the Trusts as defendants.  On the same day, the CFPB also filed a motion to approve the Proposed Consent Judgment negotiated with McCarter.

However, within days of the CFPB’s initiation of the lawsuit, multiple parties associated with the Trusts intervened in the litigation to argue against the entry of the Proposed Consent Judgment.  The intervenors expressed concern that the entry of the Proposed Consent Judgment would impermissibly impair or rewrite their respective contractual obligations as set forth in the agreements underlying the Trusts.  After discovery, on May 31, 2020, the Court denied the CFPB’s motion to approve the Proposed Consent Judgement, holding that McCarter lacked authority to execute the Proposed Consent Judgment pursuant to terms of the agreements governing the Trusts and Delaware law.

On June 29, 2020, in another lawsuit involving the CFPB, the United States Supreme Court held in Seila Law LLC v. Consumer Financial Protection Bureau that the CFPB’s structure violated the Constitution’s separation of powers.2  Specifically, the Supreme Court held that “an independent agency led by a single Director and vested with significant executive power” has “no basis in history and no place in our constitutional structure,”3 and that the statutory restriction on the President’s authority to remove the CFPB’s Director only for “inefficiency, neglect, or malfeasance” violated the separation of powers.4  The Supreme Court then concluded that the proper remedy was to sever the removal restriction, and ultimately allowed the CFPB to stand.  The Supreme Court also noted that an enforcement action that the CFPB had filed to enforce a CID while its structure was unconstitutional may nonetheless be enforceable if it was later successfully ratified by an acting director of the CFPB who was removable at will by the President.  If not so ratified, however, the enforcement action must be dismissed.

Around the time the Supreme Court issued its decision in Seila Law, various intervenors were briefing multiple motions to dismiss the CFPB’s complaint against the Trusts.  One subset of intervenors—Ambac Assurance Corporation, the Pennsylvania Higher Education Assistance Agency, and the Wilmington Trust Company5 (collectively, “Ambac”)—argued, inter alia, that: (i) the Supreme Court’s decision in Seila Law required dismissal of the CFPB’s complaint because the CFPB’s ratification of the litigation against the Trusts was untimely, and (ii) the Court lacked subject matter jurisdiction over its asserted claims because the Trusts are not “covered persons” as required under the CFPA.  Another intervenor, Transworld Systems, Inc.6 (“TSI”) also argued that the CFPB’s complaint merited dismissal for lack of subject matter jurisdiction as well.

The Court’s Holding

Subject Matter Jurisdiction

The Court held that it possessed the requisite subject matter jurisdiction to decide the CFPB’s claims, and rejected the contention that a showing of whether the Trusts are “covered persons” is a jurisdictional requirement under the CFPA.  To determine whether a restriction—such as the term “covered persons”—is jurisdictional, the Court looked to “whether Congress has clearly stated that the rule is jurisdictional.”7  “[A]bsent such a clear statement,” courts “should treat the restriction as nonjurisdictional.”8

The Court then examined the CFPA, observing that there is no clear statement in the CFPA’s jurisdictional grant that “covered persons” is required.  The Court noted that only one section of the CFPA addresses the issue of subject matter jurisdiction, and that section granted jurisdiction over “an action or adjudication proceeding brought under Federal consumer law” with no mention of “covered persons” whatsoever.9

While the Court agreed that the term “covered persons” appeared multiple times throughout the CFPA, it pointed out that none of the sections where “covered persons” appeared mentioned jurisdiction.

Enforcement Authority

In light of the Supreme Court’s holding in Seila Law, the Court granted Ambac’s motion to dismiss the CFPB’s complaint due to the CFPB’s lack of enforcement authority as a result of its untimely ratification of the litigation.

As an initial matter, the Court observed that there was no question that the CFPB initiated the enforcement action against the Trusts at a time when its structure violated the constitutional separation of powers.  The task facing the Court, then, would be to determine (i) whether that constitutional defect has been cured by ratification, or (ii) whether dismissal of the suit is required.  Under the applicable Third Circuit precedent, there are three general requirements for ratification of previously-unauthorized action by an agency: (1) “the ratifier must, at the time of ratification, still have the authority to take the action to be ratified”; (2) “the ratifier must have full knowledge of the decision to be ratified”; and (3) “the ratifier must make a detached and considered affirmation of the earlier decision.”10  Here, the parties’ dispute centered around the first requirement.

Under the first requirement, the Court noted that “it is essential that the party ratifying should be able not merely to do the act ratified at the time the act was done, but also at the time the ratification was made.”11  On July 9, 2020, the CFPB’s then-Director, Kathy Kraninger, had ratified the decision to initiate the CFPB’s litigation against the Trusts a few weeks after the Supreme Court’s decision in Seila Law.  The Court held that Director Kraninger’s ratification was ineffective, because (i) an enforcement action arising from alleged CFPA violations must be brought no later than three years after the date of discovery of the violation to which the action relates,12 (ii) ratification is ineffective when it takes place after the relevant statute of limitations has expired, and (iii) the CFPB clearly had discovery of the Trusts’ alleged CFPA violations more than three years before the ratification date, i.e., before July 9, 2017.  Thus, Director Kraninger’s ratification of the CFPB’s decision to file suit against the Trusts failed to cure the constitutional defects raised by Seila Law, and the CFPB’s complaint—initially filed by a CFPB director unconstitutionally insulated from removal—could not be enforced.

In so holding, the Court rejected the CFPB’s argument that the timeliness requirements for ratification were satisfied because the CFPB had brought the original suit within the applicable limitations period.  The Court likewise rejected the CFPB’s request to equitably toll the statute of limitations for ratification, because the CFPB “could not identify a single act that it took to preserve its rights in this case in anticipation of the constitutional challenges that could have reasonably ended with an unfavorable ruling from the Supreme Court.”13

Key Takeaways

The securitization industry has operated for decades on the premise that agreements governing securitization transactions provide that transaction parties are responsible for their own malfeasance and, barring special circumstances, will not be held accountable for the misconduct of other parties to the transaction.  A decision holding that passive securitization entities like the Trusts are “covered persons” under the CFPA—and thus potentially responsible for the actions of their third-party service providers—would undermine the certainty of contract terms that undergirds the success of the structured finance industry, with grave implications for the heathy functioning of the industry.  While the substantive question of whether passive securitization entities like the Trusts could indeed be “covered persons” and held accountable for the actions of their third-party service providers remains to be answered for another day, the Court did observe that it “harbor[ed] some doubt” that the plain language of the CFPA extended to passive statutory trusts,14 and expressed skepticism as to whether the CFPB could successfully replead in a manner that would successfully cure the deficiencies in its original complaint.

1   2021 WL 1169029, at *3 (D. Del. Mar. 26, 2021).

2   140 S.Ct. 2183, 2197 (June 29, 2020).  For a detailed discussion on Seila Law, please see our July 2, 2020 Clients & Friends Memo, “Seila Law LLC v. Consumer Financial Protection Bureau: Has the Supreme Court Tamed or Empowered the CFPB?”, available at https://www.cadwalader.com/resources/clients-friends-memos/seila-law-llc-v-consumer-financial-protection-bureau-has-the-supreme-court-tamed-or-empowered-the-cfpb.

3   Id. at 2201.

4   Id. at 2197.

5   Ambac Assurance Corporation provided financial guarantee insurance with respect to securities in over half of the Trusts.  The Pennsylvania Higher Education Assistance Agency is the Primary Servicer for the Trusts, while the Wilmington Trust Company is the Trusts’ Owner Trustee.

6   TSI is a sub-servicer responsible for the collection of the Trusts’ delinquent loans.

7   Nat’l Collegiate Master Student Loan Tr. at *3 (citing Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 153 (2013)).

8   Id.

9   See 12 U.S.C. § 5565(a)(1).

10  Nat’l Collegiate Master Student Loan Tr. at *4 (quoting Advanced Disposal Serv. E., Inc. v. Nat’l Labor Relations Bd., 820 F.3d 592, 602 (3d Cir. 2016)).

11  Id. (quoting Advanced Disposal, 820 F.3d at 603) (emphasis in original).

12  12 U.S.C. § 5564(g)(1).

13  Nat’l Collegiate Master Student Loan Tr. at 7.

14  Id. at 3.

© Copyright 2020 Cadwalader, Wickersham & Taft LLP

ARTICLE BY Ellen Holloman,  Neil J. Weidner,  Cheryl D. Barnes
Rachel Rodman, Scott A. Cammarn and Ailsa Chau of
Cadwalader, Wickersham & Taft LLP

For more articles on the CFPB, visit the NLR Financial Institutions & Banking section.

Seila Law LLC v. Consumer Financial Protection Bureau: Has the Supreme Court Tamed or Empowered the CFPB?

On June 26, the Supreme Court issued its long-awaited opinion in Seila Law LLC v. Consumer Financial Protection Bureau,1 finally resolving the question that has dogged the new agency since its inception:  Is the leadership structure of the Consumer Financial Protection Bureau (CFPB) constitutional?  Writing for a 5-4 majority, Chief Justice John Roberts ruled that the CFPB structure—“an independent agency that wields significant executive power and is run by a single individual who cannot be removed by the President unless certain statutory criteria are met”—violates the Constitution’s separation of powers.2  

For financial services companies regulated by the CFPB, the most important aspect of Seila Law is not the headline constitutional defect, but the remedy.  Choosing “a scalpel rather than a bulldozer,”3 the Court did not invalidate the CFPB.  The Court held 7-2 that the Director’s constitutionally offensive removal protection could be severed from the CFPB’s other authorities, thus bringing the Director (and with her, the CFPB) under Presidential control, while leaving the CFPB’s other powers in place.4

While Seila Law  is an important case in the evolving doctrine of separation of powers as applied to independent agencies, the case has three immediate consequences for financial services companies.  First, the CFPB is here to stay, and its broad authorities and other controversial aspects (such as its insulation from Congressional appropriations) remain intact.  Second, the CFPB’s Director is now directly accountable to the President, significantly raising the stakes in the 2020 election for the agency’s regulatory and enforcement agenda.  Third, the Court left one important question unanswered:  it declined to address the effect of its ruling on prior CFPB rules and enforcement actions.  While we believe the agency will attempt to cure the constitutional defect, we expect continued litigation—and uncertainty—on this issue.

Background

In response to the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), creating the CFPB as an independent financial regulator within the Federal Reserve System.5  The CFPB has expansive authority to “implement and, where applicable, enforce Federal consumer financial law,” which includes 19 enumerated federal consumer-protection statutes and the Dodd-Frank Act’s broad prohibition on unfair, deceptive, and abusive acts and practices.6  The CFPB’s authority over consumer financial products and services includes rulemaking authority with respect to the enumerated statutes, the ability to issue orders, including orders prohibiting products and services which it concludes are “abusive” or substantively unfair, as well as the power to impose significant financial penalties on financial services companies.  The CFPB is funded through the Federal Reserve System, and thus is not subject to Congressional constraint through the appropriations process.  Although technically housed within the Federal Reserve System, the CFPB also is not subject to oversight or control by the Board of Governors of the Federal Reserve System.  As a result, the CFPB was created to be an independent agency, largely unconstrained by Congress or the Federal Reserve System.  The CFPB is headed by a single Director appointed by the President, by and with the advice and consent of the Senate, for a five-year term.7  The Director may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.”8  

In 2017, the CFPB issued a civil investigative demand to Seila Law LLC, a California-based law firm that provides debt-related legal services to consumers.  Seila Law refused to comply, objecting that concentrating the CFPB’s authority in a single Director with for-cause removal protection violated the separation of powers doctrine.  The CFPB filed a petition to enforce its demand in federal district court.  The district court rejected Seila Law’s constitutional objection and ordered the law firm to comply with the demand.  The Court of Appeals for the Ninth Circuit affirmed.9

Case Analysis: Seila Law

The Supreme Court granted certiorari to address the constitutionality of the CFPB’s single-Director structure.  That decision was telling in and of itself, given that the Ninth Circuit’s ruling was in accord with PHH Corporation v. CFPB, the D.C. Circuit’s en banc opinion upholding the Director’s removal protection.10  As many had expected, the Supreme Court reversed the Ninth Circuit and held that Congress’s restriction on the President’s power to remove the CFPB’s Director violated the separation of powers doctrine. 

The Court began its analysis from the premise that Article II of the Constitution gives the entire executive power to the President alone, “who must ‘take care that the Laws be faithfully executed.’”11  Lesser officers who aid the President in his or her duties “must remain accountable to the President, whose authority they wield.”12  The President’s power to remove these lesser officers at will is foundational to the President’s executive function and “has long been confirmed by history and precedent.”13  The Court held that “[w]hile we have previously upheld limits on the President’s removal authority in certain contexts, we decline to do so when it comes to principal officers who, acting alone, wield significant executive power.”14  The Court found that the CFPB’s Director fit that bill.  In creating the CFPB, Congress “vest[ed] significant governmental power in the hands of a single individual accountable to no one.”15  Such an agency “has no basis in history and no place in our constitutional structure.”16 

Next, the Court turned to the remedy.  Seila Law argued that the Director’s unconstitutional removal protection rendered the “entire agency … unconstitutional and powerless to act.”17  The Court disagreed.  Relying on the Dodd-Frank Act’s severability clause, the Court’s severability precedent, and the proposition that “Congress would have preferred a dependent CFPB to no agency at all,” the Court ruled that the Director’s removal protection is severable from the CFPB’s other statutory authorities.18  “The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.”19  

Finally, the Court expressly declined to address how its holding affects prior CFPB regulatory and enforcement actions.  The government had argued that the Court need not reach the constitutional question because the CFPB’s demand to Seila Law had since been ratified by an Acting Director accountable to the President.20  The Court remanded the question of ratification to the lower courts, noting that it “turns on case-specific factual and legal questions not addressed below and not briefed here.”21

Implications

Seila Law is an important case for the canons of administrative law and the separation of powers doctrine.  But for financial services companies regulated by the CFPB, it has meaningful (and immediate) practical consequences.

First, the CFPB has escaped Supreme Court review with its authorities basically untouched.  Absent Congressional action, the CFPB will (i) continue to be run by a single Director, (ii) continue to wield expansive rulemaking, supervisory, and enforcement authority over the multi-trillion dollar market for consumer financial products and services, and (iii) continue to be insulated from Congressional control via the appropriations process.

Second, the CFPB’s Director is now directly accountable to the President—whoever that person may be.  Typically, financial regulators have a measure of insulation from the political process to provide consistency and certainty to financial markets.  With this decision, the election of the next President—and the prospect of a Democratic administration—could result in significant and immediate changes to the CFPB’s regulatory and enforcement agenda.

Third, while Seila Law secured the CFPB’s future, the Court left in place significant uncertainty as to its past.  This past includes major enforcement actions and rulemakings that have reshaped the market for consumer financial products and services over the last nine years.  Of course, it remains to be seen what appetite financial services companies have to challenge the CFPB’s prior rules and enforcement orders.  And, we expect the CFPB will attempt to remedy the constitutional defect by ratifying the agency’s past actions or perhaps invoking the de facto officer doctrine.22  Yet, the availability of either remedy is an open question.  Ratification in particular is a live dispute in both Seila Law and a pending en banc appeal before the Fifth Circuit, Consumer Financial Protection Bureau v. All American Check Cashing.23  Ratification of prior agency actions was also left unresolved in another thread of the Supreme Court’s recent separation of powers jurisprudence.  In Lucia v. SEC, the Court found that the SEC hired administrative law judges (ALJs) in violation of the Appointments Clause, but offered limited remedial guidance aside from instructions that Lucia was entitled to a “new hearing before a properly appointed” ALJ.24  While litigating Lucia’s challenge, the SEC issued an order purporting to ratify its past ALJ appointments by approval of the Commission itself.  The Court acknowledged that order, but declined to address its validity.25

1   Seila Law v. Consumer Financial Protection Bureau, 591 U.S. ____ (2020) (June 26, 2020).

2   Id., Slip Op. at 2–3.

3   Id., at 35.

4   Id.,  at 3. 

5   Title X of the Dodd-Frank Act, 12 U.S.C. § 5301 et seq., created the CFPB and defines its authorities. 

6   12 U.S.C. § 5511 (defining CFPB’s purpose); 12 U.S.C. § 5481(14) (defining “Federal consumer financial law”). 

7   Id. § 5491(b)(2), (c).

8   Id. § 5491(c)(3).  For a detailed discussion of the CFPB and its powers, see our Clients & Friends Memo, The Consumer Financial Protection Bureau: The New, Powerful Regulator of Financial Products and Services (March 06, 2012).

9   Seila Law, Slip Op. at 6–8 (discussing procedural history).

10 PHH Corp. v. CFPB, 881 F. 3d 75 (D.C. Cir. 2019) (en banc).  Tellingly, then-Judge Kavanaugh wrote the D.C. Circuit panel decision holding that the CFPB’s structure violated the separation of powers doctrine.  839 F.3d 1 (D.C. Cir. 2016). The en banc court vacated that decision, but now-Justice Kavanaugh joined the majority in Seila, reiterating his separation of powers analysis from the D.C. Circuit.    For further analysis of the PHH decision, see our Client & Friends Memo Federal Appeals Court Rules That CFPB Structure is Constitutional  (Jan. 31, 2018) (discussing the en banc decision); D.C. Circuit Brings CFPB under Presidential Control  (Oct. 13, 2016) (discussing the initial panel decision of the D.C. Circuit).

11 Seila Law, Slip Op. at 11 (quoting U.S. Const., Art. II, § 1).

12 Id. at 12.

13 Id.

14 Id. at 36.  Specifically, the Court wrote that it has recognized two limited exceptions to the President’s unrestricted removal power.  Seila Law, Slip Op. at 15–16.  First, in Humphrey’s Executor, 295 U.S. 602 (1935), the Court upheld removal restrictions for Commissioners of the Federal Trade Commission, which Roberts characterized as “a multimember body of experts, balanced along partisan lines, that performed legislative and judicial functions and was said not to exercise any executive power.”  Seila Law, Slip Op. at 15.  Second, in United States v. Perkins, 116 U.S. 483 (1886), and Morrison v. Olson, 487 U.S. 654 (1988), the Court permitted removal protections for certain inferior officers with narrow duties, such as an independent counsel appointed to investigate and prosecute specific crimes.

15 Seila Law, Slip Op. at 23.

16 Id. at 18.

17 Id. at 31.

18 Id. at 32–36 (emphasis in original).

19 Id. at 3.

20 Id. at 30.

21 Id. at 31. Justice Thomas viewed this theory as irrelevant, since the Acting Director could not have ratified the continuance of the action by Director Kraninger. Justice Kagan did not address this theory specifically.

22 See Ryder v. United States, 515 U.S. 177 (1995) (the de facto officer doctrine “confers validity upon acts performed by a person acting under the color of official title even though it is later discovered that the legality of that person’s appointment or election to office is deficient.”).

23 No. 18-60302 (5th Cir.).

24 Lucia v. S.E.C., 138 S. Ct. 2044, 2055 (2018).

25 Id. at 2055 n.6.

© Copyright 2020 Cadwalader, Wickersham & Taft LLP

ARTICLE BY Rachel Rodman and Scott A. Cammarn and Nihal S. Patel at Cadwalader, Wickersham & Taft LLP.

For more on the CPFB, see the National Law Review Consumer Protection law section.

CRA Opportunity, Customer Service Opportunity, or Both?

The Board of Governors of the Federal Reserve System (Board) and the Consumer Financial Protection Bureau (CFPB) combined to issue four seemingly unrelated letters that, taken together, appear to reopen the ability of a bank to safely reenter the small dollar loan market as well as secure Community Reinvestment Act (CRA) credit in broadened areas. On May 20, 2020, the Board released the Interagency Lending Principles for Making Responsible Small Dollar Loans. Since the creation of the CFPB, the primary federal bank regulators have frowned upon banks making small loans that were viewed as deposit anticipation loans. Over the past several months, the banking regulators have recognized that consumers have a genuine need for small dollar credit and can benefit more by securing such credit from a bank rather than payday lenders or other nonbank lenders. Shortly thereafter, on May 22, the CFPB released a letter to the Bank Policy Institute containing a no-action letter template that banks with over $10 billion in assets may submit a request for a no-action letter for standardized, small dollar credit products.

On May 21, the Board issued a letter that certain investments in “elevated poverty areas” qualify as investments in low- or moderate-income (LMI) areas. An LMI area is one or more census tracts where the median family income is less than 80% of the median family income of the relevant Metropolitan Statistical Area (MSA) or state, as appropriate. Elevated poverty areas are areas in which the poverty rate is 20% or more and is not based on income relative to the MSA or state in which the area is located. Because the LMI definition is based on relative income, areas with a high absolute poverty rate are sometimes not considered LMI areas because they are located in a state in which median incomes are low in general. In other words, the median income of an area with a high absolute poverty rate may not be significantly less than the generally low median income of the MSA or state as a whole. For this reason, the Board determined that investments in elevated poverty areas will receive the same credit as if the investment had been made in an LMI area, although the area may not be designated as such

Finally, on May 27, the Board, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (agencies) issued Frequently Asked Questions on CRA Consideration for Activities in Response to the Coronavirus. Under the Q&A, COVID-19 affected states and jurisdictions are considered CRA-designated disaster areas. Therefore, the agencies will grant consideration for activities that revitalize or stabilize areas by protecting public health and safety, particularly for LMI individuals, LMI geographies, distressed or underserved non-metropolitan middle-income geographies, and, as noted before, high poverty areas. Examples include loans, investments, or community development services that support emergency medical care, purchase and distribution of personal protective equipment, provision of emergency food supplies, or assistance to local governments for emergency management. The time frame for this consideration extends six months after the national emergency declaration is has ended. Of particular note, loans, including Paycheck Protection Program (PPP) loans, in amounts of $1 million or less to for-profit businesses or to nonprofit organizations are reported and considered as small business loans under the applicable CRA retail lending tests. PPP loans will be considered particularly responsive if made to small businesses with gross annual revenues of $1 million or less or to businesses located in LMI geographies or high poverty areas. PPP loans in amounts greater than $1 million may be considered as community development loans if the loans also have a primary purpose of community development as defined under the CRA.

Question 11 relates back to the Interagency Lending Principles for Making Responsible Small Dollar Loans. Answer 11 states that CRA encourages activities that benefit LMI individuals and families, which would include individuals and families who have recently become low- or moderate-income due to loss of jobs, decreased hours, or furloughs that reduce income due to the COVID-19 emergency.

These seemingly unrelated letters work together to give banks both an incentive and a reward to make bankable loans to entities and individuals located in LMI areas or high poverty areas in order to reduce financial stress as individuals return to the workforce and entities reopen, offering employment opportunities to those individuals. Such efforts should be well documented for CRA credit.

© 2020 Jones Walker LLP

For more on Community Reinvestment Act, see the National Law Review Financial Institutions & Banking law section.

US Banking Agencies Issue Statement on Alternative Date in Credit Underwriting

On December 3, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB) and the National Credit Union Administration (the Banking Agencies) released interagency guidance related to the use of alternative data for purposes of underwriting credit (the Guidance).

The Guidance acknowledges that alternative data may “improve the speed and accuracy of credit decisions,” especially in cases where consumer credit applicants have “thin files” because they are generally outside the mainstream credit system. In order to comply with applicable federal laws and regulations when using such alterative data, including those related to unfair, deceptive, or abusive acts or practices, the Banking Agencies advise that lenders should responsibly use such information. Furthermore, the Guidance reminds lenders of the importance of an appropriate compliance management program that comports with the requirements of applicable consumer protection laws and regulations.

As a final recommendation, the Banking Agencies suggest that lenders consult with appropriate regulators when planning to use alternative data to underwrite credit.

The Guidance is available here.

©2019 Katten Muchin Rosenman LLP

The Future of the CFPB: the Executive Branch and Separation of Powers

On October 18, 2019 the Supreme Court granted certiorari in Seila Law v. Consumer Financial Protection Bureau (CFPB). SCOTUS  will answer the question of “whether the substantial executive authority yielded by the CFPB, an independent agency led by a single director, violates the separation of powers,” and the Justices requested that the parties brief and argue an additional issue: “If the Consumer Financial Protection Bureau is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. § 5491(c)(3) [the for-cause removal provision] be severed from the Dodd-Frank Act?”

Origins of the Consumer Financial Bureau and Previous Constitutional Challenges

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) established the CFPB as an independent bureau within the Federal Reserve System designed to protect consumers from abusive financial services practices.  The structure and constitutionality of the CFPB has been addressed before. In 2018, the D.C. Circuit held in PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. 2018) (PHH) that the current structure of the CFPB, which features a single director that cannot be removed by the president except for cause, “is consistent with Article II” of the Constitution.

The PHH opinion stated that Congress’ response to the consumer finance abuse that led up to the 2008 financial crisis purposely created the CFPB to be “a regulator attentive to individuals and families”  because the existing regulatory agencies were too concerned about the financial industry they were supposed to supervise. It was determined that the CFPB needed independence to do its job, and the CPFB structure was designed to confer that independence.   Neither PHH Corporation nor the CFPB filed a petition for certiorari to ask the Supreme Court to review the D.C. Circuit’s decision.

Background of the Seila Law Case

In Seila Law v. Consumer Financial Protection Bureau (CFPB) the Petitioner is a law firm that provides a variety of legal services to consumers, and as part of a CFPB investigation into whether Seila Law violated certain federal laws, the CFPB issued a civil investigative demand seeking information and documents. Seila Law objected to the demand on the ground that the CFPB was unconstitutionally structured and filed a petition to a federal district court for enforcement. The district court held that the structure of the CFPB did not violate the separation of powers and was constitutional, after which that district court decision was appealed. The Ninth Circuit affirmed, noting that the issues had been “thoroughly canvassed” in the DC Circuit it in PHH, and adopting the position of the PHH majority that the CFPB’s structure is constitutional. Seila Law filed a petition for a writ of certiorari with the U.S. Supreme Court seeking review of the Ninth Circuit’s ruling, and here we are.

An Experienced Federal Agency Litigator’s Perspective

Mr. Anthony E. DiResta, is co-chair of Holland & Knight’s Consumer Protection Defense and Compliance Team, and a former Director of the Federal Trade Commission’s (FTC) Southeast Regional office.  Mr. DiResta was kind enough to take some time with the National Law Review to discuss the upcoming Seila Law decision and its impact on the future of the CFPB.

_______________

NLR: Can you sum up the CFPB and separation of powers story to this point from your own viewpoint?

DiResta: The Supreme Court has decided to review this case because of the constitutionality of the CFPB’s structure, based on separation of powers. Any single leader in government who doesn’t serve at the pleasure of the President may simply have too much power, and people with certain jurisprudential philosophies about how government should be run find that an offensive situation. That’s the theory behind the certiorari decision and why SCOTUS is addressing the case – it’s really a question of constitutionality and the power of administrative agencies. Additionally, the Court will look at the severability of the CFPB in Dodd-Frank, whether it’s possible to just restructure the single leader structure, and then leave the Bureau intact to continue business as usual.

NLR: It seems many of these issues could’ve been avoided had the CFPB been structured more as a multi-member commission initially or if Congress had simply expanded FTC powers.  Why do you think it was structured differently?

DiResta: That’s a matter of speculation – but I think it might have gone something like this: After the Recession in the early 2000s, many people felt that government was asleep at the wheel, letting  devastating things in banking and finance and servicing to consumers run out of control, which led to serious blunders and mishaps. So it was decided that a new office was needed – and this was led by representatives in Congress like Elizabeth Warren.

Why they didn’t simply expand the power and resources of the FTC is also pure speculation – they could have merely expanded FTC’s jurisdiction and reach to achieve similar outcomes and intentions.

The Constitutionality of the CFPB

NLR: Do you think SCOTUS will rule in favor of the petitioner in Seila Law, and find the structure of the CFPB unconstitutional?

DiResta: I do. I suspect that SCOTUS will, in fact, find the structure unconstitutional on the basis of the separation of powers. But I also believe that an even more interesting part of that will be the discussion of the severability of the organization’s leadership, leaving the CFPB itself intact. If the structure is unconstitutional, how the Court recommends a remedy to correct that unconstitutionality could have far-reaching effects. This is so important – and we should all be excited that we get to watch this corrective process in action.

NLR: Is there a chance this would result in a complete restructure of CFPB, or even its possible dissolution?

DiResta: I really don’t think so – and the Court couldn’t do that anyway. The Court could recommend to Congress that a certain path for correction be followed, but it will be up to Congress to rearrange the CFPB (if that’s the result) in the best way. The legislative branch will just have to make sure it’s done, in a way that the Court recommends.

Some More Background on CFPB Constitutionality Litigation

Then-Judge, now Justice Kavanaugh was on the U.S Court of Appeals Court for the D.C. Circuit for the 2018 en banc ruling in the PHH Corp. v. CFPB case and on the 2016 three-judge decision. Judge Kavanaugh authored two opinions regarding PHH:  declaring a certain aspect of the CFPB to be unconstitutional and in 2018, the dissenting opinion from the en banc U.S. Court of Appeals for the D.C Circuit’s decision overruling the 2016 panel opinion.

The 2016 panel opinion determined that the structure of the CFPB is unconstitutional stating:  “The concentration of massive, unchecked power in a single Director marks a dramatic departure from settled historical practice and makes the CFPB unique among independent agencies.” And the 2016 panel also presented a view of the Constitution that vests with the president an extensive degree of unilateral authority over the executive branch’s enforcement of federal laws.

NLR:  Since Justice Kavanaugh was a judge involved in a similar case – PHH Corp. v. CFPB – why is he allowed to rule on this matter again?

DiResta: I’m not an expert on judicial ethics but there does not appear to be improper bias in Kavanaugh reviewing this decision. Rather, his views in PHH reflect a philosophical perspective on separation of powers and the role of administrative agencies.  In fact, I expect they’ll use his past ruling on PHH as part of their internal discussion.

Seila Law v CFPB and Election Politics

NLR: It’s difficult to ignore the political undertones of this case:  a watchdog organization created, in part, with input from some high-profile democrats (most notably Elizabeth Warren, who is currently running as a candidate for president) is being challenged and that challenge is being echoed in support by largely conservative elements.  In your view, is this case a litmus test for the Supreme Court delving into political issues, something it has largely tried not to do?

DiResta: No – I really don’t see this as political. Again, this is a purely constitutional question, a legal question, and it’s exactly the kind of case the SCOTUS should be deciding. If we’re honest, this is a perfect example of why we have SCOTUS in the first place: To examine how effective our public servants are behaving and performing their responsibilities under the constitutional structure revealed in the separation of powers doctrine.

Besides that, politically speaking, this could boomerang. Consider: if the Democrats win the White House in 2020, and the Court were to change the structure, that would offer any Democratic President the opportunity to appoint a new Director in 2021, and Kathleen Kraninger’s term isn’t up until 2023.

Informed Democracy at Work

While the situation with CFPB and its constitutionality is demonstrably important, DiResta touched on a few more salient – though no less important – points.

DiResta: Democracy isn’t supposed to be easy. Democracy is hard – it’s messy and complicated. It’s in its nature, and in the nature of different ideas.

In a free marketplace of ideas, people will clash when citizens are free to express themselves, and there will always be conflict – but it’s out of resolving those conflicts that democracy claims – and grows – its power and attraction. It’s so important that we – the people – see this and get to comment on it – to watch this happening.

NLR: Absolutely. In a world where the news cycle has compressed from days, to hours, to minutes – while attention spans have diminished in similar fashion – it’s increasingly important that these monumental workings in government are transparent, and that people see them.

DiResta: I couldn’t agree more. And – as a young lawyer, I  had the privilege to work with some very dedicated and highly professional journalists who understood journalism as a public service, not as entertainment.  These journalists saw themselves as educators, bringing light to the processes and prospects of government to citizens. And that’s how the media serves effectively as the Fourth Branch of government. A branch that presents a constant check to the power of government and its branches, and that gives the people the knowledge to make better decisions, and to vote for the best people and the best situations.

We sincerely appreciate Mr. DiResta for his thoughtful insights and for taking time out of his busy schedule to share them with the National Law Review.

Copyright ©2019 National Law Forum, LLC

CFPB Decision on “GSE Patch” Revives Debate About Prudent Underwriting

The Consumer Financial Protection Bureau (CFPB) recently announced that it will allow the so-called “GSE patch” to expire in January 2021.[1] This patch permits Government-Sponsored Entities Fannie Mae and Freddie Mac to buy loans even though the borrower’s debt-to-income (“DTI”) ratio exceeds the standard limit of 43%.[2]

The CFPB’s decision revives a long-standing debate about what constitutes a creditworthy loan. By eliminating the patch, the DTI ratio of 43% will become an absolute rule, making any loans with higher DTI’s ineligible for GSE funding.[3]

This type of bright-line rule—focused on a single component of a loan—has already drawn criticism as myopic.[4] Some have pointed out that, based on recent studies, DTI alone is a poor predictor for default of prime and near-prime loans.[5] For example, in each year since 2011, the 90-day delinquency rate for loans with DTI ratios over 45% has actually been lower than that for loans with DTI ratios between 30% and 45%.[6]

In fact, some studies indicate that adequate compensating factors can completely offset any minimal increase in risk associated with a higher DTI.[7] Yet, under this new rule, a borrower with a 44% DTI cannot qualify for a GSE loan, notwithstanding any number of other positive factors in the loan file.

It is entirely possible that this new decision could harm consumers, contrary to the CFPB’s mandate to protect them. Barring “high” DTI borrowers from accessing GSE loans could, at best, force such borrowers to obtain more expensive and riskier products, and at worst, preclude such borrowers from qualifying for any product at all.[8] Over the last six years, more than 10% of GSE-backed loans have relied on the patch.[9] Eliminating the patch is also likely to have a disproportionately adverse effect on minorities and others living in underserved communities.[10]

The creditworthiness of a loan, we firmly believe, must be evaluated by considering the loan as a whole. Simply isolating one aspect of the loan file such as DTI does not necessarily provide a thorough understanding of the risk profile. Instead, one typically must consider many characteristics beyond DTI–such as credit score and history, LTV and CLTV, asset and cash reserves, type and length of employment, and many more–to assess whether a loan should qualify for credit.[11]

Simply put, a loan typically cannot be considered a “bad” loan simply because of one feature. Instead, as some lawyers and courts have colorfully put it, each loan is a “snowflake” that must be considered independently and holistically on its own merits.

[1] See, for example.

[2] The other criteria for a Qualifying Mortgage (QM) include: (1) a lack of negative amortization, interest-only, or balloon features; (2) fully-documented income verification; (3) a total of points and fees less than 3 percent of the loan amount; and (4) a fully amortized payment schedule no longer than 30 years, with a fixed rate for at least five years, and all principal, interest, taxes, insurance, and other assessments included. See “Qualified Mortgage Definition for HUD-Insured and Guaranteed Single-Family Mortgages,” 78 Fed. Reg., 75215 (December 11, 2013); “Loan Guaranty: Ability-to-Repay Standards and Qualified Mortgage Definition under the Truth in Lending Act,” 79 Fed. Reg., 26620 (May 9, 2014); “Single-Family Housing Guaranteed Loan Program,” 81 Fed. Reg., 26461 (May 3, 2016).

[3] This rigid model stands in stark contrast to the FHA, VA, and USDA, which have no maximum DTI requirement. See, at page 2.

[4] See, for example.

[5] Id. at page 1; see also, e.g., Richard Green, “The Trouble with DTI as an Underwriting Variable—and as an Overlay,” Richard’s Real Estate and Urban Economics Blog, December 7, 2016.

[6] See(see Table 2).

[7] See page 10 and footnote 33.

[8] Id. at page 7.

[9] Mortgage Rule (see Table 1).

[10] Mortgage GSE Patch.

[11] (see Table 2) (noting that credit scores and LTV ratios might predict default more accurately than DTI ratios).

© 2019 Bilzin Sumberg Baena Price & Axelrod LLP
This article was written by Kenneth Duvall and Philip R. Stein of Bilzin Sumberg.
For more CFPB regulation updates, see the National Law Review Financial Institutions & Banking Law page.

CFPB Proposes Additional Changes to the Prepaid Rule

On June 15, 2017, the CFPB announced that it is proposing for public comment certain modifications to its prepaid rule. The rule, which was issued in final form in October 2016, limits consumers’ losses for lost and stolen prepaid cards, requires financial institutions to investigate errors, and includes enhanced disclosure provisions.

The final rule unexpectedly granted Regulation E error resolution rights to consumers holding unregistered prepaid accounts, a provision that was not part of the CFPB’s original proposal. Financial institutions criticized this aspect of the final rule, arguing that providing error resolution rights to holders of unregistered accounts would invite and open new avenues for fraud. Financial institutions also argued that it would be difficult, if not impossible, to investigate alleged errors if they have little to no information about the purchasing customer. As a result, financial institutions have claimed that, if the CFPB retains error resolution rights for unregistered prepaid accounts, they would no longer provide immediate access to funds on such accounts.

To address these concerns, the current proposal would require consumers to register their prepaid accounts to qualify for Regulation E error resolution rights, including the right to recoup funds for lost or stolen cards. Under the CFPB’s proposal, however, Regulation E error resolution rights would apply to registered accounts even if the card was lost or stolen before the consumer completed the registration process.

The proposal also requests comment on provisions that would create an exception for certain digital wallets. Under the proposed exception, customers using digital wallets linked to a traditional credit card product would continue to receive Regulation Z’s open-end credit protections and would not receive the protections of the credit-related provisions of the prepaid rule.

As discussed in a prior post, in April 2017, the CFPB extended the compliance date for the prepaid rule from October 1, 2017, to April 1, 2018. In the latest proposal, the CFPB requests comment on whether it should extend the compliance date even further.

The proposal also includes other adjustments and clarifications regarding the definition of a prepaid account, pre-acquisition disclosure requirements, submission of prepaid account agreements to the CFPB, and unsolicited issuance of access devices. Along with its proposal, the CFPB has released an updated version if its Prepaid Rule Small Entity Compliance Guide.

Comments on the CFPB’s proposal are due 45 days after publication in the Federal Register.

This post was written by Lucille C. Bartholomew of Covington & Burling LLP.

Congress Attempts to Counsel Trump Concerning Removal of CFPB Director Cordray, While PHH Petition for Rehearing Remains Undecided

Congress Capitol CFPB Director CordrayToday, Senators Chuck Schumer (D-NY), Sherrod Brown (D-OH), Elizabeth Warren (D-MA) and others voiced their opposition to any attempt by President-elect Donald Trump to oust Richard Cordray, the current Director of the Consumer Financial Protection Bureau (“CFPB”), before Cordray’s term ends in July 2018. They also sent a letter to Cordray outlining and praising his accomplishments as CFPB Director.

The Senators’ opposition to the prospect of Cordray’s removal is just the latest volley between members of Congress and the incoming Administration concerning the CFPB’s directorship.

On January 12, Sean Spicer, a senior spokesperson for President-elect Trump, told reporters that the President-elect had interviewed former Representative Randy Neugebauer (R-TX) for the position of Director of the CFPB. With Richard Cordray’s term as CFPB Director not scheduled to conclude until July 2018, this strongly suggested that the President-elect is considering an attempt to oust Cordray sooner. While in Congress, Rep. Neugebauer introduced legislation aiming to replace the CFPB’s single director with a five-member commission.

Spicer’s statement came on the heels of a January 10 statement from Senator Brown, the ranking member of the Senate Banking, Housing, and Urban Affairs Committee, urging the President-elect not to attempt to remove Cordray or abolish the CFPB. Senator Brown cautioned President-elect Trump that, “Under Richard Cordray’s leadership, the CFPB has returned $12 billion to servicemembers, seniors, and working Americans . . . Firing Cordray and abolishing the consumer bureau so the special interests can get their $12 billion back would shatter President-elect Trump’s promise to hold Wall Street accountable and protect working people.”

Also on January 10, minority members of the House Committee on Financial Services released a letter to President-elect Trump in the same vein, commending Director Cordray and counseling the President-elect against attempting to remove him.

On January 9, Senators Ben Sasse (R-NE) and Mike Lee (R-UT) released a letter to Vice President-elect Mike Pence urging the opposite: “Given the CFPB’s unconstitutional structure, removing Director Cordray would be consistent with President Trump’s oath to ‘preserve, protect, and defend the Constitution of the United States’ and his duty to serve as an independent guardian of the U.S. Constitution. Removing Director Cordray would also uphold the American idea of limited government, because Director Cordray has vigorously supported the unconstitutional independence of the CFPB and pursued a regulatory agenda that is harmful to the American people.”

The prospect of Director Cordray’s removal is top of mind following the D.C. Circuit Court’s decision in PHH Corp., et al. v. Consumer Financial Protection Bureau, which ruled unconstitutional the provision of the Dodd-Frank Act establishing that the CFPB Director could be fired only “for cause,” i.e., for inefficiency, neglect of duty, or malfeasance in office.

As discussed in a prior post, Senators Brown and Warren are among 21 current and former members of Congress who filed an amicus brief in support of the CFPB’s petition for rehearing en banc of the PHH decision. On December 22, PHH filed a response to the petition, arguing that there is no need for the D.C. Circuit to revisit its original decision. The United States also filed a response on December 22, arguing that the D.C. Circuit’s decision “departs from” Supreme Court jurisprudence regarding the separation-of-powers and the removal of executive agency heads. The court granted PHH until January 27 to respond to the United States’ brief. Any decision on the petition for rehearing will thus not be made until after President-elect Trump’s inauguration on January 20, raising the prospect that the United States’ brief could be withdrawn if the Department of Justice’s position changes under the incoming Administration.

ARTICLE BY Jamie A. Heine of Covington & Burling LLP

© 2017 Covington & Burling LLP

One Day Left to Share Your Comments about the Closing Process with the Consumer Financial Protection Bureau (CFPB)!

McBrayer NEW logo 1-10-13

 

On January 3, the Consumer Financial Protection Bureau (“CFPB”) issued a notice and request for information in the Federal Register regarding the real estate closing process. Specifically, the CFPB is interested in knowing the consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

The bureau wants input from consumers, mortgage lenders, housing attorneys, settlement closing agents, real estate agents, fair lending and consumer advocates – basically anyone and everyone with closing experience. This is your chance to share your perspective, whether good or bad, and help the closing process to be a smoother and more consumer friendly one for your future purchase, sale or refinance. The information collected during the comment period will be used to help the CFPB come up with future improvement initiatives. This is part of the larger “Know Before You Owe” project, which is intended to help consumers understand and navigate the home-buying process.

The CFPB has made it easy to share information by listing seventeen specific questions they would like responses to, including:

1. What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2. Are there specific parts of the closing process that borrowers find particularly helpful?

3. What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4. How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5. How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6. What, if anything, have you found helps consumers understand the terms of the loan?

7. What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8. What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

9. How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10. Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

11. What documents do borrowers usually remember seeing? What documents they remember signing?

12. What documents do consumers find particularly confusing?

13. What resources do borrowers use to define unfamiliar terms of the loan?

14. What, if anything, would you change about the closing process to make it a better experience for consumers?

15. What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16. What is the single most important question a consumer should ask at closing?

17. What is the single most important thing a consumer should do before coming to the closing table?

You can submit answers to these questions, along with your own additional comments, online by visiting this webpage:  http://www.regulations.gov. But time is of the essence! The comment period closes tomorrow, February 7th. Hurry and let your opinions be known!

 

Article by:

Brittany C. MacGregor

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

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