CFPB Turns Two with a Bang – What Now?

The Consumer Financial Protection Bureau (CFPB or the Bureau) hit its second birthday this week in grand style. Has it really been just two years? I don’t believe I would be in minority in feeling CFPB has been around much longer given all the Dodd-Frank rules it has cranked out and all the press it has received over the controversial recess appointment of Rich Cordray in January 2012. But, who’s counting, right?

Speaking of Rich Cordray, his recent formal Senate confirmation was perhaps the biggest birthday present of all to the Bureau. Majority Leader Harry Reid (D-NV) had to threaten the Senate with the “nuclear option” (a change of Senate rules to allow “majority” rule) over several stalled Obama nominees to key administration positions.  The Senate was close to DEFCON 1 before a handful of Republicans told Harry to take his finger off the button because they would allow votes on the nominees. Cordray was the first nominee to get confirmed. House and Senate republicans have been pressing for structural changes to CFPB pretty much after the ink was dry on the Dodd-Frank Act. Senate Republicans were united in 2012 and 2013 that no CFPB Director nominee would be confirmed unless the CFPB became a commission (like the FTC or FCC) and received its appropriations from Congress and not the Federal Reserve. Two federal courts even called into the question the “recess” appointment of Cordray as they ruled that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional. The Supreme Court even agreed to hear the case in October. All this legal uncertainty is fairly moot given the Senate’s confirmation (and the Supreme Court’s recent proclivity to threading the needle on touchy constitutional issues).

But, enough about history. What does the future hold for the Bureau? I don’t buy quite into the hype by some that the Bureau is coming out swinging against banks now that Cordray has lost his “recess” tag. I expect the Bureau will be sensitive and responsive to the concerns from Capitol Hill. It will certainly be responsive to the Government Accountability Office (GAO) as it begins to examine its data collection practices. As requested by Sen. Mike Crapo (R-ID), ranking Republican on the Senate Banking Committee, GAO will review identity, account and transaction data the Bureau collects during its supervision of banks or through other direct request. The Bureau claims that the transaction data is de-linked with any personally-identifiable information. We’ll see what GAO comes up with (presumably in 2014).

The Bureau also released its updated regulatory agenda through the end of the year. Expect to see a notice of proposed rule-making on extending Reg E protections to general-reloadable prepaid cards in addition to new proposed rules on debt collection and payday loans. I suspect CFPB will continue to tinker with the Dodd-Frank mortgage rules to take effect in January 2014. It certainly doesn’t want to be tagged with tanking the housing market if no one can get a loan. If you really want to peer into CFPB’s future, follow its consumer complaint portal progress reports. CFPB has stated that the trends it sees through the complaint portals will drive its enforcement and regulatory agenda.

Industry and CFPB need to work together more than ever to ensure balance is struck between consumer protection and a healthy financial services industry. Consumers are hurt if the pendulum swings too hard one way. Keep checking with this blog for progress reports. 

Handicapping the CFPB in 2013

2013 began with a bang for the Consumer Financial Protection Bureau. In January, the Bureau released several mortgage-related final rules as mandated by the Dodd-Frank Act. The mortgage industry has been in a mad rush to put together webinars to detail ability-to-repay, appraisal reform and high-cost mortgage requirements. It is not an exaggeration to note these mortgage rules consumed much of the Bureau’s bandwidth in its brief existence.

So, just as the Bureau comes up for air, it gets rocked by an somewhat related court case concerning another federal agency, the National Labor Relations Board. How are the two agencies connected by this court case? Let’s hit the rewind button.

It’s no deep Washington secret that current presidents are having a more difficult time getting various federal nominees through the US Senate. It’s also no secret that modern presidents have utilized “recess” appointments more and more (as permitted by the U.S. Constitution). Enter the controversial CFPB and the quest to have the Senate confirm a Director as required by Dodd-Frank. The Bureau existed for almost 18 months without a confirmed Director. Elizabeth Warren ran the CFPB during its incubation period as a special advisor to the President. Having a director in place was important to the Bureau because it would assume certain authority (such as the authority to supervise non-bank entities like debt collectors and credit bureaus) only with a confirmed Director.

It became very apparent to President Obama and others the Senate would not have 60 votes necessary to bring the nomination of Elizabeth Warren to the Floor for a vote. In 2011, President Obama nominated former Ohio Attorney General Rich Cordray to be the CFPB Director. The Senate Banking Committee approved Cordray’s nomination out of committee, but many Republican senators wanted to consider structural changes to the CFPB before moving on Cordray’s nomination. For example, altering the Bureau from control by a single Director to a five-member commission. And making the Bureau subject to annual Congressional appropriations versus receiving its funding from the Federal Reserve. Senate Democrats believe the Bureau is just fine as Dodd-Frank created it, so Cordray’s nomination was at a stalemate in the late stages of 2011.

On January 4, 2012, President Obama rolled the dice. Believing the Senate was in “recess,” the President appointed Cordray as the director of the CFPB. At the same time he made recess appointments of three nominees to the NLRB. The legal community hit an uproar shortly thereafter on both sides of the issue. In April 2012, a Washington state-based company, Noel Canning, was the lead plaintiff in the case against the Administration’s NLRB recess appointments. In January of this year the U.S. Circuit Court of Appeals (DC) unanimously ruled against President’s Obama recess appointments to the NLRB.

The three-judge panel declared the Senate remained in “pro forma” sessions when the appointments occurred and was not technically in recess. The Obama Administration announced its intention to appeal the ruling to the U.S. Supreme Court. The NLRB decision called into question the validity of Richard Cordray’s recess appointment to be the CFPB Director. The Cordray question is being addressed in a separate lawsuit still pending before another court. On January 24, 2013, President Obama announced his decision to re-nominate Cordray as CFPB Director subject to Senate confirmation. Congress will consider legislation again in 2013 to alter the Bureau’s structure (five-member commission as opposed to a single director) and subject the Bureau to annual Congressional appropriations.

So, where does this leave the CFPB in 2013? I doubt the Bureau will be affected much at all in the short term. It will continue on with its examination of banks and non-banks. It will take some high-profile enforcement actions. It will put forth some challenging proposed rules on overdraft protection and general purpose prepaid cards. Even if the district court decides Cordray’s appointment was unconstitutional sometime in 2013, the appeals process could take years. Will the court strike down all the Bureau actions and rules taken while Cordray served as Director? And, what of the fate of Cordray? This is the biggest unknown. Will the Senate confirm him without any changes to the Bureau itself? Does he leave at the end of 2013 as his recess appointment expires and Obama puts forth another nominee?

If you have answers to these questions, go buy a lottery ticket quickly.