According to news reports yesterday, Ohio Supreme Court Justice Bill O’Neill has told media sources that he was informed by an unnamed mutual friend that Director Corday plans to enter the 2018 Democratic primary for Ohio governor.

Judge O’Neill indicated that the mutual friend had called him to ask whether the Judge planned to abide by prior statements that he would not enter the race if Director Cordray decided to run.  Judge O’Neill stated that he did plan to abide by his prior statements.

There is also speculation that Director Cordray will announce his candidacy on September 4 at the Cincinnati AFL-CIO annual Labor Day picnic where he is a scheduled speaker.  Should Director Cordray resign in September, plenty of time will remain for a new Director to take a fresh look at the CFPB’s arbitration rule and move forward on the steps necessary to prevent the rule from becoming operational on March 19, 2018 as currently scheduled.


The letter-writing war between Director Cordray and Acting Comptroller Keith Noreika continues.  Director Cordray sent a letter dated July 18, 2017 to Acting Comptroller Noreika in which he purports to respond to Acting Comptroller Noreika’s July 17 letter to Director Cordray and continues to question how there could be “any plausible basis for [Acting Comptroller Noreika’s] claim that the arbitration rule could adversely affect the safety and soundness of the banking system.”  To support his conclusion, he relies on the CFPB’s economic analysis of the rule which “shows that its impact on the entire financial system (not just the banking system) is on the order of less than $1 billion per year.”  He then compares this to banking industry profits last year of over $171 billion.  He also points to the mortgage market (in which the use of pre-dispute arbitration provision is prohibited) which he states “is larger than all other consumer financial markets combined” and states that nobody suggests that the lack of arbitration poses a safety and soundness issue.  He states, “So on what conceivable basis can there be any legitimate argument that this poses a safety and soundness issue?”

Although I am sure that Acting Comptroller Noreika will respond to Director Cordray’s question, let me try to respond myself.

First, why is it a “given” that the CFPB’s cost estimates are reasonable?  The CFPB said it could not quantify expected costs of additional state court class actions and just assumed that they would be less than the costs of additional federal court class actions.  Shouldn’t the OCC be entitled to review the CFPB’s methodology and to conduct its own study of costs?  Let’s not forget that it is the OCC and the other prudential banking regulators, not the CFPB, that is responsible for ensuring the safety and soundness of the banking system.

Second, while banking industry profits last year were $171 billion, there is no assurance, as Director Cordray implies, that industry banking profits will continue to increase.  Indeed, during the last economic recession, particularly during 2008 and 2009, banking industry profits were minuscule with many banks sustaining large losses.  Furthermore, in assessing the impact of the arbitration rule on safety and soundness, it is not enough to focus on the industry as a whole.  Those numbers include the overwhelming majority of banks that are community banks who are rarely the target of class action litigation.  Instead, the CFPB and the OCC should focus on the larger banks that are often targeted by the class action lawyers.  As we learned from the economic crisis of 2008-2009, the failure of one large bank could have a domino effect and result in multiple failures which certainly would create safety and soundness concerns.  The point is that while the CFPB has estimated costs to the industry for the arbitration order, it has not conducted, and it lacks the expertise and experience to conduct, a study to assess the impact of the rule on bank safety and soundness.

Director Cordray has also overlooked why arbitration came into vogue about 15 or 20 years ago.  It was because banks and other consumer financial services providers were being crushed by an avalanche of class action litigation.  At the time, it was becoming a safety and soundness issue.  There is every reason to expect a similar avalanche of litigation to occur sometime after the compliance date of the rule.  Indeed, things may actually be worse now than they were 15 years ago because of the enactment of new federal and state consumer protection laws, like the TCPA, where there is no cap on class action liability.

Finally, Director Cordray’s reference to the mortgage industry is misplaced.  While arbitration provisions are prohibited in mortgages, the Uniform Mortgage Instruments contain language requiring a borrower to provide notice to the lender of a dispute and an opportunity to resolve the dispute before the borrower may participate in any litigation.  That language would potentially preclude a class from being certified.

Keith Noreika, the Acting Comptroller of the Currency, has sent a letter dated July 17 to Director Cordray asking him to delay publication of the CFPB’s final arbitration rule in the Federal Register.  The July 17 letter responds to Director Cordray’s July 12 letter to Mr. Noreika.  In his July 12 letter, Director Cordray responded to Mr. Noreika’s July 10 letter in which he stated that OCC staff had expressed safety and soundness concerns arising from the proposed arbitration rule’s potential impact on U.S. financial institutions and their customers.

In addition to raising safety and soundness concerns, Mr. Noreika’s July 10 letter asked Director Cordray to provide the data used by the CFPB to develop and support its proposed arbitration rule.  In his July 17 letter, Mr. Noreika repeats his data request, commenting that “despite your prior telephonic and in-person assurances that we would have access to the CFPB’s data, your July 12 letter ignores my request.”  While stating that he “appreciate[s]” Director Cordray’s assurances in his July 12 letter that the final arbitration rule does not have any safety and soundness impact on the federal banking system, Mr. Noreika also observes that “the CFPB, by design, is not a safety and soundness prudential regulator.”

Mr. Noreika explains that he asked the OCC’s Economics Department to analyze the proposed rule for its impact on the federal banking system when he became aware of the proposal several weeks after becoming Acting Comptroller and, so that the OCC could complete its review, was asked by the OCC’s chief economist on July 5 to request the CFPB data.  Mr. Noreika adds that he “had hoped to discuss this request with [Director Cordray] prior to the release of the Final Rule, but the timing of the release of the Final Rule was not shared with me in advance.”  While expressing appreciation for Director Cordray’s offer in his July 12 letter to have the CFPB staff review its arbitration study and rulemaking analysis with OCC staff, Mr. Noreika states that such review would “be helpful, but not sufficient, to allay my concerns.”

Mr. Noreika, in his July 17 letter, not only repeats his request for the CFPB data, but also asks Director Cordray to delay publication of the final arbitration rule in the Federal Register “until my staff has had a full and fair opportunity to analyze the CFPB data so that I am able to fulfill my safety and soundness obligations.”  Mr. Noreika’s request for the publication delay is undoubtedly tied to the timing in the Dodd-Frank Act for an agency that is a member of the Financial Stability Oversight Council (FSOC) to file a petition with the FSOC to set aside a CFPB final regulation.  A member agency can file such a petition with the FSOC if the member agency “has in good faith attempted to work with the Bureau to resolve [safety and soundness or financial system stability] concerns” and files the petition no later than 10 days after the regulation has been published in the Federal Register.  If a petition is filed, any member agency can ask the FSOC Chairperson (i.e. Treasury Secretary Mnuchin) to stay the effectiveness of a regulation for up to 90 days from the filing.


Director Corday has sent a letter to Keith Noreika, the Acting Comptroller of the Currency, responding to Mr. Noreika’s July 10 letter in which he stated that OCC staff had expressed safety and soundness concerns arising from the proposed arbitration rule’s potential impact on U.S. financial institutions and their customers.

In his response, Director Cordray stated that he “was surprised” to receive Mr. Noreika’s letter and that the CFPB had “consulted repeatedly” with OCC representatives and other prudential regulators regarding “prudential, market, or systematic objectives administered by such agencies” as required by Section 1022 of the Dodd-Frank Act (DFA).  Director Cordray claimed that “at no time during this process did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system” and that Mr. Noreika did not “express such concerns to [Director Cordray] when [they] have met or spoken.”  

Anticipating that Mr. Noreika’ letter could signal an attempt by the OCC to file a petition with the Financial Stability Oversight Council (FSOC) to set aside the final arbitration rule, Director Cordray stated that the points raised in Mr. Noreika’s letter “do not satisfy the statutory requirement that an agency ‘has in good faith attempted to work with the Bureau to resolve concerns regarding the effect of the rule on the safety and soundness of the United States banking system or the stability of the financial system of the United States’ and has been unable to do so.”  Under the DFA, satisfying the good faith requirement is a prerequisite to the filing of a petition by an agency with the FSOC to set aside a CFPB regulation.

Director Cordray also asserted that no basis exists for a claim that the arbitration rule puts the federal banking system at risk and provided a memorandum prepared by the CFPB’s Arbitration Agreements Rulemaking Team that “analyzes the suggestion in [Mr. Noreika’s letter] that the arbitration agreements rule…implicates the safety and soundness of the federal banking system.”

In his response, Director Corday highlighted several of the memorandum’s “key points” and stated that he believed those points “conclusively put to rest any safety and soundness concerns.”  Among the points highlighted by Director Cordray was that a majority of depository institutions operate without arbitration agreements and there was no evidence such banks and credit unions are less safe and sound than their counterparts with such agreements.  He also attempted to minimize the significance of the more than 500 million dollars that the CFPB has projected the rule will cost banks annually to defend against class action litigation.  

As we have previously observed, although the “majority” of banks may not use arbitration agreements, that is because most banks are small community banks in rural areas that are typically not the target of class action litigation.  However, the CFPB’s own data in its March 2015 empirical study of arbitration showed that 45.6% of the 103 largest banks with accounts representing 58.8% of insured deposits use arbitration clauses and it is those banks that are more likely to be the targets of class actions.


I recently blogged about the rumor I heard from a reliable source that the CFPB will issue a final arbitration rule by the end of July.  That rumor appears to be gaining traction, with a major industry trade group telling its members today that it expects the CFPB to issue a final arbitration rule “very soon.”

If and when the CFPB issues a final rule, it will have a compliance date that is the 211th day after the rule is published in the Federal Register (which is approximately seven months after publication).  The same source who told me that a final rule will be issued by the end of July also told me that Director Cordray will leave the CFPB in the fourth quarter of this year to run for Ohio governor.  If a final rule were to be issued this month and Director Cordray were to resign by year-end, that would mean compliance with a final arbitration rule would not yet be required when Director Cordray leaves.

Assuming a new CFPB Director appointed by President Trump was in place before the compliance date of a final arbitration rule, could the new Director stay the compliance date?  The decision issued earlier this week by the U.S. Court of Appeals for the D.C. Circuit in Clean Air Council v. Pruitt raises questions as to whether Director Cordray’s successor could validly issue such a stay unilaterally.  In that decision, the D.C. Circuit ruled that the EPA lacked authority to stay the compliance date of an EPA rule concerning methane and other greenhouse gas emissions and vacated the stay.

The EPA rule became effective in August 2016 and required regulated entities to conduct a monitoring survey by June 3, 2017.  After several industry associations filed a petition with the EPA seeking reconsideration of the rule and a stay of the compliance date pending reconsideration, the new EPA Administrator appointed by the Trump Administration announced that the EPA was convening a proceeding for reconsideration and issued a 90-day stay of the compliance date.  The EPA thereafter published a notice of proposed rulemaking and announced its intention to extend the stay for two years while it reconsidered the rule.  Several environmental groups then challenged the stay in the D.C. Circuit.

While agreeing with the EPA that an agency’s decision to grant a petition to reconsider a regulation is not a reviewable final agency action, the D.C. Circuit ruled that it did have authority to determine whether the stay was lawful.  According to the D.C. Circuit, by suspending the rule’s compliance date, the EPA’s stay was essentially an order delaying the rule’s effective date and therefore “tantamount to amending or revoking a rule.”  As a result, the D.C. Court concluded that it had jurisdiction to review the stay order’s validity.

The D.C. Circuit rejected the EPA’s reliance on its broad discretion to reconsider its own rules, observing that while agencies do have such broad discretion, they must comply with the Administrative Procedure Act (APA), including its notice and comment requirements.  It also rejected the EPA’s argument that it had inherent authority to stay or not enforce a final rule while it reconsidered the rule, and instead deemed it necessary for the EPA to “point to something in either the Clean Air Act or the APA” giving it authority to stay the rule.  The court then concluded that the only provision cited by the EPA, a Clean Air Act provision, did not give it the claimed authority because that provision only allowed a stay if reconsideration was mandatory and the court found reconsideration was not required.  However, the court also noted that “nothing in this opinion in any way limits the EPA’s authority to reconsider the final rule and to proceed with its June 16 NPRM.”

Based on the  D.C. Circuit’s Clean Air Council decision, it appears that while a new CFPB Director could issue a NPRM to reconsider a final arbitration rule, he or she might be unable to unilaterally stay the final rule’s compliance date.  Instead, it could be necessary for the new Director to propose a stay of the final rule pending its reconsideration that would be subject to notice and comment.

It is also possible that the CFPB will issue a final payday loan rule in the next few months.  Since the CFPB stated in its proposed rule that a final rule would generally not become effective until 15 months after its publication in the Federal Register and Director Cordray’s term expires in July 2018, even if Director Cordray stays at the CFPB until the end of his term, a new CFPB Director should be in place before a final payday loan rule becomes fully effective. However, any stay of a final payday loan rule’s effective date by a new Director could similarly be subject to notice and comment.

Other possible routes exist for overturning a final arbitration or payday loan rule.  Either rule could be invalidated through legislation eliminating the CFPB’s authority to issue such rule, a resolution of disapproval under the Congressional Review Act, or a lawsuit challenging the rule’s validity based on the CFPB’s failure to comply with Section 1028 of Dodd-Frank (which authorized the CFPB to regulate pre-dispute consumer financial services arbitration provisions) and/or the APA.


On Monday, the U.S. Supreme Court denied the petition for certiorari in CFPB v. Chance Edward Gordon, a case filed by the CFPB in 2012 that alleged the defendant had duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers.  The CFPB charged the defendant with violations of the Consumer Financial Protection Act and Regulation O, the Mortgage Assistance Relief Services Rule.

As part of his affirmative defenses to the CFPB’s complaint, the defendant included a challenge to President Obama’s recess appointment of Director Cordray.  He argued that because Mr. Cordray was not validly appointed as CFPB Director, the CFPB’s enforcement action was invalid because the CFPB had no authority over non-banks in the absence of a validly-appointed Director.  The district court did not address the merits of the defendant’s recess appointment argument but found that he had violated the CFPA and Regulation O and ordered approximately $11.4 million in disgorgement and restitution.

In its opinion affirming the district court’s finding of liability, the Ninth Circuit ruled that Director Cordray’s invalid recess appointment did not render the enforcement action against the defendant invalid because Director Cordray’s subsequent valid appointment coupled with his notice ratifying the actions he took as Director while serving as a recess appointee cured any initial constitutional deficiencies.  The petition for certiorari presented the questions of whether the recess appointment rendered the enforcement action invalid as well as whether it deprived the court of Article III jurisdiction to hear the enforcement action.

We were not surprised by the Supreme Court’s denial of the certiorari petition since there is currently no clear circuit split on the issue of how ratification affects a federal official’s past actions.  In addition, Gordon did not present the separation of powers issue involved in PHH.  Unlike that issue which could have far-reaching consequences, the ratification issue only impacts actions that pre-date Director Cordray’s subsequent valid appointment.  As a result, if after the D.C. Circuit issues its en banc decision in PHH a certiorari petition is filed that presents the separation of powers issue, there is a much greater likelihood that the Court will grant the petition.


I have previously expressed serious doubt whether Director Cordray will issue a final arbitration rule. In the CFPB’s last semi-annual regulatory agenda issued last year, the CFPB stated that the arbitration rule would be issued in February of this year. It is almost July and the CFPB has still not issued the rule. All they have stated publicly, most recently in May at the Chicago version of the PLI Annual Institute on Consumer Financial Services which I co-chair, is that the staff is still wading through comment letters and that the rule was not ready to be issued.

As I have stated previously, I think that the real reason for the delay is a result of Director Cordray’s concern that if he issued a final rule, Congress would nullify it under the Congressional Review Act (the “CRA”). Under the CRA,  through a joint resolution passed by a simple majority in the House and Senate and signed by the President, Congress may override any final rule within 60 legislative days after it receives notice of the rule. Already, at least 14 rules issued by agencies other than the CFPB have been nullified. However, Congress didn’t nullify the CFPB’s prepaid accounts rule. If a rule is nullified, then the agency is precluded from ever issuing a similar rule in the future.

I felt that the fear of a CRA override would be enough to deter Director Cordray from ever issuing a final arbitration rule. It appears that I may be wrong.

I’m now hearing a rumor from a reliable source that Director Cordray is willing to roll the dice and will issue a final arbitration rule by the end of July. If he does so, the rule will become effective on the 211th day after the rule is published in the Federal Register, well within Director Cordray ‘s remaining term which expires on July 21,2018. However, I heard from the same source who told me that the rule will be finalized by the end of July that Director Cordray will resign in the 4th quarter of this year to return to Ohio to run for governor.

So where does this leave us? If Cordray issues the rule by the end of July, there will certainly be an effort to override it under the CRA. It should succeed as long as the Republican Senators vote as a bloc to override it. With a 52-48 voting margin in the Senate, the Republicans can only afford to lose 2 votes and still pass the override resolution.

It is also likely that there will be a lawsuit filed challenging the legality of the rule. While I think there are very strong arguments in support of a court invalidating the rule, the outcome of litigation is always uncertain.

There is yet a potential third way for the arbitration rule to not become effective. If Director Cordray resigns to run for Governor of Ohio in the 4th quarter and President Trump appoints a successor (either a permanent one or a temporary one), and the rule is not yet effective, the successor could delay the effective date and then take steps to repeal the rule before it ever becomes effective. Of course, any such repeal would need to comply with the Administrative Procedures Act.

As you can see, there are lots of “moving parts” here and it is very uncertain how this will all play out.

In his prepared remarks for today’s Consumer Advisory Board meeting, Director Cordray discussed CFPB initiatives in four areas.  In addition to the CFPB’s letter to the top retail credit card companies encouraging them to use zero-interest promotions instead of deferred-interest promotions and its new report on consumers transitioning to credit visibility, Director Cordray discussed the CFPB’s RFI on the small business lending market and its debt collection rulemaking.   

Last month, in conjunction with a field hearing, the CFPB issued the RFI, together with a white paper on small business lending.  In his remarks, Director Cordray revealed that, in response to requests for additional time to respond to the RFI (which currently has a July 14, 2017 comment deadline), the CFPB is extending the comment period by 60 days.  He also indicated that the CFPB has “been hearing from congressional officials who want to see more progress made on [the Section 1071] rulemaking” and that the CFPB is “now moving forward.”   

With regard to the CFPB’s debt collection rulemaking, Director Cordray discussed the debt collection proposals under consideration by the CFPB which it released last July in anticipation of convening a SBREFA panel.  The coverage of the CFPB’s SBREFA proposals was limited to “debt collectors” that are subject to the FDCPA.  When it issued the proposals, the CFPB indicated that  it expected to convene a second SBREFA panel in the “next several months” to address a separate rulemaking for creditors and others engaged in debt collection not covered by the proposals. 

In his remarks, Director Cordray described the proposals as focused on three primary issues: “mak[ing] sure that collectors are contacting the right consumers, for the right amount”; “mak[ing] sure that consumers clearly understand the debt collection process and their rights”; and “mak[ing] sure that consumers are treated with dignity and respect, particularly in their communications with collectors.”  He indicated that when the CFPB evaluated “the feedback we received on the proposals under consideration” (presumably the report of the SBREFA panel on the input received from the small entity representatives who met with the panel), it became clear that “[w]riting rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time.”  He observed that “[f]irst-party creditors like banks and other lenders create the information about the debt, and they may use it to collect the debt themselves.  Or they may provide it to companies that collect the debt on their behalf or buy the debt outright.  Either way, those actually collecting on the debts need to have the correct and accurate information.” 

He commented that because “breaking the different aspects of the informational issues into pieces in two distinct rules was shaping up to be troublesome in various ways,” the CFPB has decided to write a market-wide rule in which it will “consolidate all the issues of ‘right consumer, right amount’ into the separate rule we will be developing for first-party creditors, which will now cover these intertwined issues for third-party collectors and debt buyers as well.”   He indicated that this approach will allow the CFPB “to move forward more quickly with a proposed rule focused on the remaining issues” concerning disclosures by debt collectors and how consumers are treated by debt collectors and that “[o]nce we proceed with a proposed rule on these issues, we will return to the subject of collecting the right amount from the right consumer, which is a key objective regardless of who is collecting the debt.”



On May 24, 2017, the US Court of Appeals for the D.C. Circuit (D.C. Circuit) held oral argument in the PHH case, which we have blogged about extensively. The constitutionality of the CFPB’s structure was the central issue at the oral argument, occupying the vast majority of the time and the judges’ questions. It appears that the court intends to decide whether the CFPB’s single-director-removable-only-for-cause structure violates the Constitution’s separation of powers doctrine, even if the court rules in PHH’s favor on the RESPA issues.

The judges’ questioning signaled that, in their minds, the resolution turns on three questions: First, how does the CFPB structure diminish Presidential power more than a multi-member commission structure, which the Supreme Court has approved? Second, doesn’t the CFPB’s structure make it more accountable and transparent than a multi-member commission? Third, what are the consequences of approving the CFPB structure? Judges that appeared not to be concerned with the CFPB’s structure generally focused on the first two questions. Judges that appeared to be concerned with the CFPB’s structure focused on the third question. Another key theme addressed at various points throughout the oral argument is whether the CFPB’s structure is sufficiently close to the structures validated in prior Supreme Court cases, such that the court must uphold the CFPB’s structure.

At the oral argument, PHH’s counsel urged the court to recognize the serious affront that the various features of the CFPB’s structure, taken together, present to Presidential power, including: (i) the single director, (ii) the for cause removal provision, (iii) the funding outside the Congressional appropriations process, (iii) the director’s ability to appoint all inferior officers with no outside input, (iv) the director’s five-year term, (v) the deferential standard of review given to the director’s decisions, (vi) the director’s ability to promulgate regulations unilaterally, and (vii) the director’s sole ability to interpret and enforce regulations.

Before PHH’s counsel could even fully articulate his argument, however, judges started questioning him on how these features diminished Presidential power more than the multi-member commissions running other agencies, which the Supreme Court approved in Humphrey’s Executor. The DOJ, which was given time at the oral argument, forcefully responded to the judges’ questions. The “quintessential” character of the executive is the ability to act “with energy and dispatch,” counsel argued. Multi-member panels, as deliberative bodies, lack that quality and are thus more legislative and judicial than executive. Thus, they encroach on Presidential power to a much lesser degree.

DOJ’s counsel also pointed out that the rationale justifying the for cause removal provision that that the Supreme Court approved in Humphrey’s Executor was not present in agencies endowed with the CFPB’s structural features. The DOJ’s counsel pointed to language in Humphrey’s Executor approving the for-cause removal provisions only as to “officers of the kind here under consideration,” namely FTC commissioners. The Humphrey’s Executor court extensively described the FTC and the officers “here under consideration” in a way that precluded any applicability of the case to the CFPB. In Humphrey’s Executor, the FTC was described as a “non-partisan,” non-political body of experts that exercised quasi-judicial and quasi-legislative powers. The CFPB does not fit that mold, the DOJ ‘s counsel argued.

Counsel for both PHH and the DOJ also stressed that the CFPB did not fit the mold of the inferior officer at issue in Morrison v Olson, in which the Supreme Court approved a for-cause removal provision applicable to a special prosecutor. A few judges asked counsel questions apparently aimed at establishing that the existence of special prosecutors was as great an affront to Presidential power as is the CFPB’s structure.

During these lines of questioning, one judge suggested that the CFPB’s structure makes it more accountable to the President. She pointed out that, with a single director, there is one person to blame for problems and that, unlike multi-member commissions, the President has the power to appoint leadership with complete control over the agency. Counsel for PHH and the DOJ responded to this by reminding the court that the President can only appoint a director after the last director’s five-year term expires or the for-cause removal provision is triggered. Interestingly, no one raised the point that the for cause removal provision and five-year term also limit the ability of a President to remove a director that he or she appointed, even if the appointee did not act in a manner satisfactory to the President. Thus, the argument that the CFPB director is somehow more accountable than a multi-member commission does not hold water.

Some judges’ questions presented the issue that “if” the CFPB director is the same as a special prosecutor or FTC commissioner, then the D.C. Circuit is bound by Humphrey’s Executor and Morrison v. Olson. Without missing a beat, however, the DOJ picked up on that “if” and argued the point that the CFPB director is nothing like either position. DOJ’s counsel asserted that the director is not an inferior officer, as was the special prosecutor in Morrison v. Olson, nor is the director part of a non-partisan body of experts, as was the FTC commissioner in Humphrey’s Executor.

During the argument, Judge Brown and Judge Kavanaugh, who wrote the panel’s majority opinion, attempted to draw the rest of the court’s attention to the consequences of extending Humphrey’s Executor to a single-director agency and Morrison v. Olson to principal, as opposed to inferior, officers. Judge Brown suggested that, if the CFPB’s structure is constitutional, nothing would prevent Congress from slapping lengthy terms and for-cause removal restrictions on cabinet-level officials. That, she argued, would reduce the presidency to a “nominal” office with no real executive power. Judge Kavanaugh addressed the same issue making an apparent reference to the speculation that Elizabeth Warren may run for President after Trump leaves office. How would it be, he questioned, if she ran on a consumer protection platform, got elected, and was stuck with a Trump-appointed CFPB director, who would presumably take a much different position on issues central to her platform?

The CFPB’s counsel defended the Bureau’s structure at the hearing using the same technical arguments that the CFPB has been making all along. The CFPB’s counsel asserted that the CFPB’s structure was constitutional because each of the features taken individually has support in Supreme Court jurisprudence, principally Humphrey’s Executor and Morrison v. Olson.

In discussing the CFPB’s problematic structural features, CFPB counsel argued that, because each feature is a “zero” in terms of a problematic Congressional encroachment on Presidential power, that adding them together resulted in zero constitutional problems. “Zero plus zero plus zero, is zero,” he said. In rebuttal, PHH’s counsel pointed out that, as catchy as the argument may be rhetorically, it completely ignores the fact that even Supreme Court jurisprudence supportive of the individual features recognizes them as departures from the norm, acceptable only under certain circumstances. PHH’s counsel observed that the features at issue are not “zeros.”

The RESPA and statute of limitations issues did not occupy much time at the oral argument. Counsel for PHH urged the D.C. Circuit to reinstate the panel’s RESPA and statute of limitations rulings, all of which were in favor of PHH, and to rule on one issue not addressed by the panel.  While the panel decided, contrary to the CFPB’s views, that the CFPB is subject to statutes of limitations in administrative proceedings, the panel left for the CFPB on remand to decide if, as argued by the CFPB, each reinsurance premium payment triggered a new three-year statute of limitations, or whether, as argued by PHH, the three year statute of limitations is measured from the time of loan closing.  The judges did not raise any questions in response to counsel’s arguments on the RESPA and statutes of limitation issues.

Even though Lucia v. SEC was argued that same day, no questions surfaced during the PHH oral argument about the impact that Lucia may have on the PHH case.

* * *

It is likely that the earliest the D.C. Circuit’s decision will be issued is toward year-end. We will continue to monitor developments in this case.


Despite its long duration (over five hours including a recess for a vote), the House Financial Services Committee’s hearing on April 5 at which Director Cordray was the sole witness provided a strong dose of political theater but little in the way of new information or substance.   Although there were many important questions that Committee members could have asked Director Cordray (we suggested several in a prior blog post), members mostly returned to familiar themes in their questions and remarks.  For Republican members, those themes included CFPB overreach and unaccountability to Congressional oversight, damage to credit availability and community banks resulting from CFPB guidance and regulations, excessive spending, and mistreatment of CFPB employees.  Familiar themes of Democratic members included how the financial crisis gave rise to the CFPB and how the CFPB serves consumers by protecting them from discrimination, fraud, and other unlawful practices.

The hearing’s battle lines were drawn during the opening remarks of Chairman Hensarling and Ranking Member Waters.  Chairman Hensarling began his remarks by referencing press reports that Director Cordray intends to run for Ohio governor, expressing surprise that he had not returned to Ohio to do so, and was still serving as CFPB director given that President Trump had the right to dismiss him at will.  He then called on the President to immediately dismiss Director Corday, claiming that the PHH decision allowed the President to do so without the need to show cause.   He also asserted that even if the President needs cause to dismiss Director Cordray, there are numerous grounds on which President Trump could rely.  According to Chairman Hensarling, such grounds include the harm inflicted on consumers by the CFPB’s auto lending guidance (as well as the illegality of the CFPB’s attempt to regulate auto dealers through such guidance) and Director Cordray’s unilateral reversal of well-settled RESPA guidance in the PHH case.

In her opening remarks, Ranking Member Waters praised Director Corday for fighting for “hard working Americans” and thanked him for his continued leadership of the CFPB.  She referenced how much money the CFPB has recovered for consumers and assessed in civil money penalties and mentioned her efforts and those of other Democrats to defend the CFPB’s constitutionality in the PHH litigation.

In addition to Chairman Hensarling’s comments, several other committee members, in their questioning of Director Cordray, raised the issue of his resignation.  Rep. Duffy asserted that because Director Cordray had served as a recess appointee from January 2012 until his Senate confirmation in July 2013, he has already effectively served a five-year term as director and  “consistent with the spirit” of Dodd-Frank, should step down voluntarily now.  In response to Rep. Zeldin’s question whether Director Cordray intended to serve the remainder of his term, Director Cordray stated that he had “no insights to provide.”  When asked by Rep. Hollingworth if he would resign if requested to do so by President Trump, Director Cordray responded that he would follow the law.

While its substantive content was slim, the hearing did produce the following noteworthy information:

  • Somewhat surprisingly, Chairman Hensarling criticized the CFPB for not proceeding more quickly to issue a regulation to implement Section 1071 of Dodd-Frank (which amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses such as the race, sex, and ethnicity of the principal owners of the business).  He commented that the CFPB had engaged in discretionary rulemaking but had not completed the Section 1071 rulemaking mandated by Dodd-Frank.
  • Rep. Lukemeyer criticized the provision in the CFPB’s proposed rule concerning the disclosure of confidential supervisory information (CSI) that would restrict a company’s disclosure of either the receipt or the content of a CID or NORA letter.  Director Cordray indicated that, after considering comments received on the proposal, the CFPB is “going back to the drawing board,” and that Rep. Lukemeyer would  be “happy” with the outcome.   (The proposal would also expand the CFPB’s discretion to share CSI with state attorneys general and other agencies that do not have supervisory authority over an entity.)
  • In response to Rep. Maloney’s question whether the CFPB plans to propose an overdraft rule, Director Cordray noted the CFPB’s long-standing interest in overdrafts, stated that overdrafts continued to be  “on our minds very much,” and said he could not speak to the timing of any rulemaking.  With regard to the timing of other pending rulemakings, when asked about the timing of a final payday/small dollar loan rule and clarifications to the TILA/RESPA integrated disclosure rule, Director Cordray was unwilling to give an estimated date for either item, noting the unprecedented number of comments received on the payday/small dollar loan proposed rule.  Although the CFPB’s arbitration rule is the furthest along in the rulemaking process, Director Cordray was not asked about the timing of a final rule and was only asked about the rule’s application to insurance premium financing agreements.
  • Director Cordray was unwilling to respond directly to Rep. Posey’s question as to how many no-action letters the CFPB has issued.  (None have been published on the CFPB’s website.)  However, he stated that the CFPB’s no-action policy has “not yet generated a lot of demand” which could indicate the policy is not working properly.
  • Several Republican committee members criticized CFPB press releases about consent orders for containing conclusory statements that a company had violated the law despite language in the consent order stating that the company neither admits nor denies the order’s findings of fact and conclusions of law.  In an exchange with Rep. Huizenga, Director Cordray defended the press releases, stating that “the facts are the facts.”   He commented that a consent order’s “neither admit nor deny” language does not matter for the truth of the facts recited in the consent order but matters for whether the facts have been established for follow-on lawsuits by private attorneys.  He was also unwilling to concede that a company might enter into a consent order because it is intimidated by the CFPB’s authority and instead insisted that the main reason a company enters into a consent order is because the CFPB has completed a thorough investigation, “we know the facts,” “they know the facts,” and “they don’t have a leg to stand on.”
  • Director Cordray indicated that the CFPB is looking at possible changes to the prepaid card final rule dealing with the linking of credit cards to digital wallets and error resolution procedures for unregistered cards.