Many banking lawyers believe recent actions by federal courts, and by Congress represent the greatest threat to the Consumer Financial Protection Bureau (CFPB) since its existence. Clearly, recent actions by federal courts and by Congress threaten the broad authority of the CFPB and how it exercises that authority. There is an outstanding question regarding which of the two threats is greater.
Two recent federal court holding threaten the CFPB’s aggressive enforcement strategies unlike in prior actions. First, on October 11, 2016, by a 2-1 margin, a three-judge panel of the US Court of Appeals for the DC Circuit (DC Circuit) in PHH Corp. v. CFPB held, among other things, that the CFPB’s single-director structure was unconstitutional because it permitted removal of the CFPB Director only for cause. The panel in the PHH case also provides excellent language that restricts the CFPB’s ability to unilaterally overrule another federal agency’s decision. Subsequently, the DC Circuit vacated the decision of the panel and granted the CFPB a re-hearing in banc scheduled for May 24, 2017. If the DC Circuit en banc rules against the CFPB, then it is widely expected that President Trump will remove CFPB Director Richard Cordray, and replace him with a new director who will change the direction of the CFPB to a more industry-friendly CFPB. Second, on March 17, 2017, the US District Court for the District of North Dakota in CFPB v. Intercept Corporation also delivered a major defeat to the CFPB by granting a motion to dismiss a CFPB complaint against the Intercept Corporation defendants because the CFPB complaint failed to allege facts sufficient to support a plausible claim upon which relief could be granted. The CFPB essentially claimed that Intercept Corporation, which is a payment processor, engaged in unfair, deceptive and abusive activities and practices by knowingly and illegally processing payments for its clients who were engaged in fraudulent or illegal transactions. The district court characterized the CFPB allegations as “an unadorned, the-defendant-unlawfully-harmed-me accusation.” A common theme between the three-judge DC Circuit panel decision in PHH and the federal district court in Intercept is that federal courts will require the CFPB to prove its claims and will not permit the CFPB to substitute its judgment for the judgment of Congress.
Congress has also recently taken action in response to the CFPB. On May 4, 2017, by a party line vote of 34-26, the House Financial Services Committee approved the Financial CHOICE Act of 2017 (CHOICE Act). Title VII of the CHOICE Act, if it became law, would, among other things, strip the CFPB of much of the authority it currently has under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank):
1. Section 711 of the CHOICE Act would rename the CFPB the Consumer Law Enforcement Agency (CLEA), and strike the section of the law which limits the president’s ability to remove the CFPB Director only for cause.
2. Section 713 would bring CLEA into the Congressional appropriation process and allow Congress to control its budget.
3. Section 715 would grant a party who is the subject of an administrative action by the CLEA to terminate the action and force the CLEA to bring the action into court.
4. Section 716 would grant the recipient of a CLEA civil investigative demand (CID) the right to file a petition in federal court to modify or set aside the CID.
5. Section 717 would require CLEA to conduct a cost benefit analysis for CLEA regulations, administrative actions, and civil actions.
6. Section 718 would make it clear that courts are not required to defer to CLEA interpretations of the laws it administers.
7. Section 720 would require CLEA to establish a procedure for responding to requests for advisory opinions.
8. Section 727 would eliminate CLEA’s examination and supervisory authority.
9. Section 729 would strip CLEA of any rulemaking, enforcement or other relating to employee benefit compensation plans or persons regulated by the CFTC or the SEC.
10. Section 733 would strip CLEA’s rulemaking, enforcement or other authority over payday loans, vehicle title loans and other similar loans.
11. Section 734 would nullify the CFPB’s March 2013 auto lending guidance. Section 736 would strip CLEA of any UDAAP authority.
12. Section 738 would repeal CLEA’s authority to restrict arbitration.
While the answer to which threat is greater is difficult, it is likely that the courts are a greater threat than Congress, at this point, because Congressional actions to date, including the CHOICE Act, have not had any direct impact on the CFPB. Recent court cases, however, have proven to be very helpful to those lawyers who regularly challenge positions of the CFPB, and, the CFPB has had to respond to those challenges in ways that it had not done so in the past.