WASHINGTON (Legal Newsline) - Richard Cordray’s sudden departure as head of the Consumer Financial Protection Bureau likely will have no impact on a decision of the U.S. Court of Appeals for the District of Columbia Circuit regarding the bureau’s structure, says a consumer finance attorney.
Richard J. Andreano Jr. is the practice leader of Ballard Spahr LLP’s Mortgage Banking Group. He has practiced financial services, mortgage banking and consumer finance law for 30 years.
Andreano said the D.C. Circuit’s pending decision in PHH Corporation v. CFPB likely will strongly influence how other courts address the CFPB structure issue.
“Note that, should the CFPB lose on the constitutional issue, the departure of Cordray likely will not affect whether the CFPB attempts to seek Supreme Court review,” he told Legal Newsline.
“While the CFPB can try cases on its own authority up to the appellate courts, it can go to the Supreme Court only with the assistance of the Justice Department. Even with Cordray still in place, the belief in the industry was that the Justice Department would not agree to seek Supreme Court review of the CFPB structure issue if the CFPB lost on that issue at the Court of Appeals.”
In February, the D.C. Circuit granted the bureau’s petition for rehearing en banc -- or a rehearing by the full court -- of the October 2016 panel decision.
Among other things, the panel had declared the bureau’s single-director structure unconstitutional and would have allowed the president to remove the director at will rather than “for cause,” as set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The CFPB was created by Dodd-Frank, which was passed in 2010 in response to the financial crisis of 2007-08 and the subsequent recession. The bureau has jurisdiction over banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies operating in the U.S.
President Trump's DOJ took a stance against the CFPB, arguing the President should be able to remove the director at-will. He also recently signed legislation passed by Republicans that voided a controversial rule approved by the CFPB that would have prevented financial services companies from including class action waivers in their contracts.
With the CFPB’s petition for rehearing being granted, the panel’s judgment has been vacated.
In May, the full D.C. Circuit heard PHH’s appeal of a $109 million penalty imposed by the bureau under the anti-kickback provisions of the Real Estate Settlement Procedures Act, or RESPA.
The court’s ruling could be handed down any day.
Cordray, a Democrat, has headed the Obama-era watchdog agency since its creation. He told colleagues in a message Wednesday that he was stepping down at the end of the month.
Andreano said he is eager to see how things play out in the coming months.
“Once there is a Director, or Acting Director, appointed by President Trump in place, there could be interesting results,” he said.
“For example, with a Director appointed by President Obama in place, the Trump administration has advocated the position that the CFPB structure is not constitutional. With a Director appointed by President Trump in place, will the Trump administration back off that position?”
Same goes for consumer groups and Democrats, which have defended the current CFPB structure, he said.
“Will they now change their position on the issue? It will be interesting to see how various interests may modify their position,” said Andreano, who assists clients with preparing for and handling CFPB examinations and bureau compliance.
Of course, changing the CFPB’s current structure would void some of those arguments.
Over the years, special interest groups, federal lawmakers and law experts all have argued that the bureau should be changed to a commission.
In a commission, the director would serve as the chairman and some sort of quorum would be required. More importantly, it would mean no one person would have nearly unlimited authority.
In a 2013 article, “The Consumer Financial Protection Bureau: Savior or Menace?” Todd Zywicki, an economist and professor at George Mason University, opined the bureau’s design as “flawed.”
He warned then of the problems it would manifest and the harm it would impose on the economy.
U.S. Rep. Randy Neugebauer, R-Texas, tried to change the structure in 2015 with his proposed Financial Product Safety Commission Act.
The failed legislation would have altered the CFPB’s structure and introduced a bipartisan, five-person commission appointed by the President to manage its work. This structure, Neugebauer pointed out, was originally suggested by then-professor and current U.S. Sen. Elizabeth Warren, former House Financial Services Committee chairman Barney Frank, and even former President Barack Obama.
Both Zywicki and Neugebauer have been mentioned as leading candidates for Cordray’s post in recent months.
In July, Richard Hunt, president and CEO of the Consumer Bankers Association, wrote an op-ed in USA Today also arguing for a commission structure. He contends the change would promote greater accountability, fairness and transparency.
And on Wednesday, the Financial Services Roundtable, which advocates for the nation’s financial services industry, also suggested a restructuring.
“The Trump administration and Congress should use this opportunity to improve the CFPB by adding a bipartisan board so key decisions are made in a bipartisan and transparent manner with more than just one person involved," FSR CEO Tim Pawlenty said in a statement, following news of Cordray’s resignation.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.