house financial services committee

Yesterday’s hearing on the CFPB held by the House Financial Services Committee highlighted the continuing partisan divide over the CFPB’s implementation of its consumer protection mission but with Democratic and Republican committee members switching roles from those taken at the hearings at which former Director Cordray appeared.  While Republicans took on the role of CFPB Director Kraninger’s champions, Democrats assumed the role of her critics.

The overall theme of Democratic members was praise for the CFPB’s activities under Director Cordray’s leadership and the need for Director Kraninger to undo the actions taken by Mick Mulvaney during his tenure as CFPB Acting Director.  (Numerous references were made to the Consumers First Act introduced on Wednesday by Chairwoman Waters which would amend the Dodd-Frank Act to reverse Mr. Mulvaney’s actions.)  The overall theme of the Republican members was renewed criticism of Director Cordray’s “regulation by enforcement” approach and the Bureau’s unaccountability to Congress due to its leadership structure and funding, with several Republican members voicing support for the creation of a bipartisan commission to replace the single Director structure.

As might be expected, Democratic members took aim at the Bureau’s proposal to eliminate the ability to repay (ATR) provisions of its payday loan rule, its decision to discontinue MLA compliance examinations, the decline in CFPB enforcement activity, the elimination of the Office of Students and Young Consumers (which was folded into the Office of Financial Education together with the Student Loan Ombudsman), and the transfer of the Office of Fair Lending from the Supervision, Enforcement, and Fair Lending Division to the Director’s Office.  In response to criticism from Democratic members about the length of time (6 months) that the Student Loan Ombudsman position has been vacant, Ms. Kraninger indicated that she has acted as quickly as possible to complete the steps necessary for refilling the position and that the job opening had been posted on Wednesday afternoon.  (Ms. Kraninger was unwilling to agree with Democratic members that there is a student loan “crisis.”)  She also indicated that a new Assistant Director to head the Office of Servicemembers would be announced next week.

Ms. Kraninger resisted the suggestion of Democratic lawmakers that the changes made by Mr. Mulvaney to the two offices would make them less effective in carrying out their responsibilities.  In fact, she indicated that the Office of Fair Lending has been strengthened by its placement in the Director’s Office.  She also gave no comfort to Democratic members regarding continued public disclosure of consumer complaint data.  (During his tenure as Acting Director, Mr. Mulvaney had signaled that he planned to discontinue the CFPB’s policy of publicly disclosing complaint data.)

With regard to the Bureau’s proposal to eliminate the ATR requirement from its payday loan rule, Ms. Kraninger repeated several times that the Bureau’s focus will be on the sufficiency of the evidence and legal support for the Bureau’s determination that it is an unfair or abusive practice to make payday loans without regard to a consumer’s ATR and that she had an “open mind” on the issue.  In response to comments from Republican members critical of the CFPB’s decision not to revisit the payday loan rule’s payment provisions, Ms. Kraninger indicated that the Bureau would be responding to a petition it has received seeking changes to the payment provisions.  (Presumably she was referring to the rulemaking petition to exempt debit card payments that was referenced in the Bureau’s payday loan rule proposal.)

Despite expressions of outrage from Democratic members, Ms. Kraninger held steadfast to her view that the CFPB lacks authority to examine financial institutions for MLA compliance and referred lawmakers to the proposed legislation submitted by the CFPB that would amend the Dodd-Frank Act to expressly provide such authority.  She also indicated that the Bureau’s primary goal would be prevention of harm through use of the CFPB’s rulemaking and supervisory authorities, with enforcement to focus on “bad actors” who have not self-reported or sought to correct their improper conduct.

In response to urging from Republican members for the CFPB to abandon any pending enforcement actions where there is no showing of actual consumer harm, Director Kraninger indicated that she planned to review the factual basis for the pending actions.  Ms. Kraninger also promised that the CFPB would engage in a thorough five-year lookback at  its mortgage rules, and expressed her willingness to discard any provisions that are not achieving their objectives.

In her written and live testimony, Ms. Kraninger indicated that she would be setting priorities for the Bureau as well as the “tone” for how the Bureau operates and would emphasize stability, transparency, and consistency.  Consistent with the Bureau’s Fall 2018 rulemaking agenda, Ms. Kraninger indicated that the Bureau was considering possible pre-rulemaking activities regarding the meaning of “abusive” under section 1031 of the Dodd-Frank Act.”  Although the CFPB’s overdraft rulemaking activities were designated “inactive” in its Spring 2018 rulemaking agenda, Ms. Kraninger indicated in response to a question from a Democratic member that the Bureau was continuing to look at overdrafts.

The five members of the panel that followed Director Kraninger gave live testimony that closely tracked their written testimony.  The panel members were:

  • Hilary Shelton, Director & Senior Vice President for Advocacy and Policy, National Association for the Advancement of Colored People
  • Linda Jun, Senior Policy Counsel, Americans for Financial Reform
  • Jennifer Davis, Government Relations Deputy Director, National Military Family Association
  • Seth Frotman, Executive Director, Student Borrower Protection Center  (Mr. Frotman was formerly the CFPB’s Student Loan Ombudsman and has been a vocal critic of the Bureau since his departure.)
  • Scott Weltman, Managing Shareholder, Weltman, Weinberg & Reis Co., L.P.A  (Mr. Weltman’s law firm defeated a lawsuit filed against it by the CFPB that alleged the law firm’s debt collection letters violated the FDCPA and CFPA.)

 

 

The House Financial Services Committee has updated its website to confirm that CFPB Director Kraninger is scheduled to appear at the Committee’s hearing tomorrow entitled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau.”

The update also indicates that Director Kraninger’s appearance will be followed by a panel consisting of the following individuals:

  • Hilary Shelton, Director & Senior Vice President for Advocacy and Policy, National Association for the Advancement of Colored People
  • Linda Jun, Senior Policy Counsel, Americans for Financial Reform
  • Jennifer Davis, Government Relations Deputy Director, National Military Family Association
  • Seth Frotman, Executive Director, Student Borrower Protection Center
  • Scott Weltman, Managing Shareholder, Weltman, Weinberg & Reis Co., L.P.A.

In addition, the Committee’s majority staff issued a memorandum to Committee members about the hearing that indicates former Acting Director Mulvaney was invited to appear but failed to respond to the Committee’s requests.  The memorandum includes a summary of the Bureau’s Spring 2018 and Fall 2018 Semi-Annual Reports that notes the “significant drop in enforcement actions” and that the Spring 2018 report “included only one instance of public enforcement action regarding fair lending” while the Fall 2018 report “reported no public fair lending enforcement actions during the covered April-September 2018 period, despite issuing a higher number of supervisory actions against institutions.”  It also notes the Bureau’s reduced spending in 2018 as well as the reduction in its workforce.

 

House Financial Services Committee Chairwoman Maxine Waters has announced a series of hearings for next month, including one entitled “Putting Consumers First? A Semi-Annual Review of the Consumer Financial Protection Bureau” scheduled for March 7, 2019.

The CFPB released its Fall 2018 Semi-Annual Report earlier this month.  Since no further information about the hearing is currently available, it not clear if it is intended to be the “traditional” hearing held by the House Financial Services Committee following the issuance of a semi-annual report at which the Bureau’s Director would appear and answer questions.

Assuming Director Kraninger does appear at the hearing, we would expect the Committee’s new Democratic leadership to be quite hostile towards her, particularly regarding the decline in the number of Bureau enforcement actions and the Bureau’s apparent greater leniency in exacting monetary relief.  We also anticipate heavy criticism of the Bureau’s recent proposals regarding its payday lending rule.

 

Democratic Congressman Bill Foster, who represents the 11th District of Illinois, has sent a letter to Maxine Waters, Democratic Chairwoman of the House Financial Services Committee, to express his “strong interest in serving as the Chair of the Taskforce on Financial Technology and Innovation that will be convened in the coming weeks.”  Ms. Waters announced her plans to create the Taskforce upon becoming Chairwoman.

In his letter (obtained by Politico), Mr. Foster mentions various credentials he holds, including his “prior career as a scientist and small business owner” and his participation as co-chair in the Blockchain Caucus.  He describes the caucus as working “to understand and explore, among other things, how a new and emerging technology can improve government services, curb identity theft, and put consumers in charge of their own identity.”

Mr. Foster indicates that as Taskforce Chair, he would work closely with Ms. Waters and the subcommittee chairs to understand and examine developments in the Fintech industry, “including marketplace lending for consumers and small businesses, partnerships with traditional financial institutions, cryptocurrency, blockchain, alternative data utilized in credit underwriting, artificial intelligence, and machine learning.”

He references the CFPB’s proposal issued last week to rescind the ability-to-repay provisions of its payday loan rule [link to alert] and states that “[i]n the context of this new development, ensuring that the underserved and underbanked communities have options and access to credit beyond predatory lenders will be a concern at the forefront of our inquiry.”  He also states that “although many financial technology companies are not subject to the same regulatory regime as traditional banks, including compliance with the Community Reinvestment Act, the Taskforce would work to examine how such companies can shoulder their fair share of the obligation to help meet the needs of low- and moderate-income communities, and ensure a fair playing field with community banks and other financial institutions.”

Mr. Foster also indicates that the Taskforce would attempt “to better understand the methods by which financial technology companies use complex algorithms to underwrite loans,” and to also understand what steps such companies are taking “to ensure that they do not engage in discriminatory practices that violate fair lending laws.”

 

A new bill introduced by House Financial Services subcommittee Chairman Rep. Blaine Luetkemeyer would significantly change data security and breach notification standards for the financial services and insurance industries. Most notably, the proposed legislation would create a national standard for data security and breach notification and preempt all current state law on the matter.

Breach Notification Standard

The Gramm-Leach-Bliley Act (GLBA) currently requires covered entities to establish appropriate safeguards to ensure the security and confidentiality of customer records and information and to protect those records against unauthorized access to or use. The proposed House bill would amend and expand  GLBA to mandate notification to customers “in the event of unauthorized access that is reasonably likely to result in identify theft, fraud, or economic loss.”

To codify breach notification at the national level, the proposed legislation requires all GLBA covered entities to adopt and implement the breach notification standards promulgated by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervisor in its  Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice. This guidance details the requirements for notification to individuals in the event of unauthorized access to sensitive information that has or is reasonably likely to result in misuse of that information, including timing and content of the notification.

While the Interagency Guidance was drafted specifically for the banking sector, the proposed legislation also covers insurance providers, investment companies, securities brokers and dealers, and all businesses “significantly engaged” in providing financial products or services.

If enacted, this legislation will preempt all laws, rules, and regulations in the financial services and insurance industries with respect to data security and breach notification.

Cohesiveness in the Insurance Industry

The proposed legislation provides uniform reporting obligations for covered entities – a benefit particularly for insurance companies who currently must navigate a maze of something conflicting state law breach notification standards. Under the proposed legislation, an assuming insurer need only notify the state insurance authority in the state in which it is domiciled. The proposed legislation also requires the insurance industry to adopt new codified standards for data security.

To ensure consistency throughout the insurance industry, the proposed legislation also prohibits states from imposing any data security requirement in addition to or different from the standards GLBA or the Interagency Guidance.

If enacted, this proposed legislation will substantially change the data security and breach notification landscape for the financial services and insurance industries. Entities within these industries should keep a careful eye on this legislation and proactively consider how these proposed revisions may impact their current policies and procedures.

Congress is back in session and this Thursday, September 7, the House Subcommittee on Financial Institutions and Consumer Credit will hold a one-panel hearing entitled “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime.”  The hearing will take place at 10:00 a.m. in room 2128 of the Rayburn House Office Building, and will involve the following witnesses:

  • Anne Fortney, Partner Emerita, Hudson Cook LLP
  • Charles Tuggle, Executive Vice President and General Counsel, First Horizon National Corporation
  • Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
  • Chi Chi Wu, Staff Attorney, National Consumer Law Center

The witnesses will testify on the following six bills:

H.R. 1849 (Rep. Trott), the “Practice of Law Technical Clarification Act of 2017

This bill seeks to protect attorney debt collectors by amending the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act of 2010.  A “debt collector” is currently defined under the FDCPA as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  Courts have interpreted this definition to cover attorneys who collect debts as a matter of course for their clients, or who collect debts as a principal part of their law practice.  Moreover, some courts have held that representations made by an attorney in court filings during the course of debt-collection litigation are actionable under the FDCPA, even when they are addressed to a consumer’s attorney and not the consumer himself.  Under the proposal, the FDCPA’s definition of “debt collector” would exclude law firms and licensed attorneys who (1) serve, file, or convey formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or who (2) communicate in, or at the direction of, a court of law or in depositions or settlement conferences, in connection with a pending legal action to collect a debt on behalf of a client.

The bill would also provide that the Consumer Financial Protections Bureau (CFPB) cannot exercise supervisory or enforcement authority over attorneys engaged in the practice of law who do not offer or provide consumer financial products or services.  The CFPB has brought a number of enforcement actions against attorneys and law firms engaged in allegedly illegal debt collection practices.

H.R. 2359 (Rep. Loudermilk), the “FCRA Liability Harmonization Act

This bill would amend the Fair Credit Reporting Act (FCRA) to limit statutory damages in FCRA class actions to the lesser of $500,000 or one percent of the net worth of the defendant. This proposal would also eliminate punitive damages that can be awarded under the FCRA.  The FCRA currently permits an award of punitive damages, and has no cap on statutory damages for individual or class actions.

H.R. 3312 (Rep. Luetkemeyer), the “Systemic Risk Designation Improvement Act of 2017

This bill seeks to amend the definition of “systemically important financial institutions” that are subject to enhanced regulatory standards under Title I of The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Currently, Dodd-Frank requires each bank holding company deemed “too big to fail” by virtue of total consolidated assets of $50 billion or more to, among other things, prepare and provide to the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve a resolution plan, or “living will,” for its rapid and orderly resolution under the U.S. bankruptcy code. The bill would remove the $50 billion asset threshold from Dodd-Frank and instead add a measurement approach based on “systemic indicator scores.”  Under this approach, only bank holding companies that are identified as global systemically important banks (G-SIB) would be subject to the Federal Reserve Board’s enhanced supervision and prudential standards.

H.R. ____ (Rep. Royce), the “Facilitating Access to Credit Act

This proposal seeks to exempt an Authorized Credit Services Provider (ACSP) from the Credit Repair Organizations Act (CROA) to the extent it provides credit and identity protection or credit education services, as defined in the bill.  The CROA currently covers a “credit repair organization,” which is defined to include anyone who provides a service, “in return for the payment of money or other valuable consideration, for the express or implied purpose of— (i) improving any consumer’s credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).” While originally aimed at credit repair scams, this broad definition has been read to cover credit monitoring products offered by consumer reporting agencies.

The bill seeks to narrow this definition by setting forth a process to apply to become an ACSP with the Federal Trade Commission (FTC), which if approved by the FTC, would allow the ACSP to provide the defined services without being subject to the CROA and without being subject to state laws and regulations concerning a credit repair organization.  State laws and regulations related to unfair or deceptive acts or practices in marketing products or services would still apply.  ACSPs that violate any of the eligibility criteria provided in the bill would be subject to retroactive revocation of status to the time of the conduct, thereby allowing the FTC to then enforce violations of the CROA.

H.R. ____ (Rep. Tenney), the “Community Institution Mortgage Relief Act of 2017

This bill would amend the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) and would direct the CFPB to reduce loan servicing and escrow account administration requirements imposed on certain loan servicers.  First, the proposal would require the CFPB to exempt from certain escrow or impound requirements a loan that is secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.  The statute does not currently provide an exemption for “smaller creditors” based on asset size.  Second, the CFPB would need to provide either exemptions to, or adjustments from, certain RESPA requirements for servicers of 30,000 or fewer mortgage loans.  The current statute provides no such threshold or exemption for “small servicers of mortgage loans.”

H.R. ____ (Rep. Hill), the “TRID Improvement Act of 2017

This bill would expand the period under RESPA and TILA in which a creditor is allowed to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days after consummation.  The proposal would also amend RESPA to allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.  Presently under RESPA, a lender may disclose a simultaneous issue discount by disclosing the full premium rate and by taking the full owner’s title insurance premium, adding the simultaneous issuance premium for the lender’s coverage, and then deducting the full premium for lender’s coverage.  This calculation method renders inaccurate disclosures of the lender’s and owner’s individual title insurance premiums even though the sum will equal the amount actually charged to the consumer when paying for both policies.

Congress is also currently considering government funding legislation, raising the debt ceiling, and tax reform so these bills may not receive close attention.  We will report back on the hearing and provide updates.

The House Financial Services Committee has released the witness list for the hearing it will hold this Wednesday, April 26, 2017, to discuss the Financial CHOICE Act.

The witnesses will be:

  • John Allison, Former President and Chief Executive Officer, Cato Institute
  • Dr. Norbert J. Michel, Senior Research Fellow, Financial Regulations and Monetary Policy Institute for Economic Freedom and Opportunity, The Heritage Foundation
  • Hester Peirce, Director of Financial Markets Working Group and Senior Research Fellow, Mercatus Center
  • Alex J. Pollock, Distinguished Senior Fellow, The R Street Institute
  • Peter J. Wallison, Senior Fellow and Arthur F. Burn, Fellow in Financial Policy Studies, American Enterprise Institute

The Committee also released a memorandum that includes a summary of the discussion draft of the bill previously released by the Committee.

On February 6, House Financial Services Committee Chairman Hensarling circulated a memorandum to the House Financial Services Committee Leadership Team describing key revisions to the Financial Choice Act.  Last week, he issued in outline form a so-called “Summary of Bill Changes” which identified further revisions to the Choice Act, which he referred to as “Choice 2.0”, some of which address subjects not covered in his February 6 revisions, which he referred to as “Choice 1.0.”

Choice 2.0, which addresses a wide range of issues, includes the following provisions that affect consumer financial services:

  1. De novo review of agency regulations would be required two years after a regulation’s enactment. This would call on more agency resources.  (Last week, we blogged about a former CFPB attorney’s comment that the CFPB’s Regulations Division is severely understaffed.)  Under Dodd-Frank, the CFPB is required to conduct a review of a regulation it adopts five years after the regulation’s effective date.  Indeed, the CFPB recently announced that it will initiate a five-year review of its regulation dealing with international money remittances.
  2. The President could remove the FHFA Director at will. The governance of the OCC and the NCUA would be unchanged.  The FDIC would be reorganized as a bipartisan commission with all five commissioners appointed by the President.  The Comptroller of the Currency and the CFPB Director, who currently serve on the FDIC Board, would not be members of the FDIC commission.
  3. Financial agencies would be required to “(1) when promulgating a rule with $100 million or more a year in impacts of state/local governments or the private sector to prepare and file a written statement on their process and evaluation and to select the least costly, most cost-effective, or least burdensome alternative, unless otherwise explained; and (2) provide state and local government and private sector with an effective process to provide input on proposals with significant mandates.”
  4. Financial agencies would be required to “implement policies to (1) minimize duplication between federal and state authorities in bringing enforcement actions; (2) determine when joint investigations and enforcement actions are appropriate; (3) and establish a lead agency for joint investigations and enforcement actions.”
  5. A financial agency, DOJ, and HUD would be prohibited “from entering into a settlement that provides payments to any person who is not a victim of the alleged wrongdoing.” The prohibition seems to be directed at certain ECOA settlements in the auto finance industry involving disparate impact.
  6. The Second Circuit’s controversial opinion in Madden v. Midland Funding would be overridden. Madden held that a non-bank transferee of a loan from a national bank loses the ability to charge the same interest rate that the national bank charged on the loan under Section 85 of the National Bank Act.  Under Choice 2.0, “a loan that is valid when made as to its maximum rate of interest should remain valid regardless of whether the loan is subsequently sold, assigned or transferred.”  While such a statutory amendment would be welcome, I believe that the OCC could more simply and quickly accomplish the same objective by issuing a regulation, as I pointed out in my recent article for American Banker’s BankThink.
  7. The CFPB, renamed the “Consumer Financial Opportunity Agency” would be governed by a sole Director (Choice 1.0 provided for a bipartisan independent commission with staggered terms) removable at will by the President. Also, the Deputy Director would be appointed by the President instead of by the Director as provided under Dodd-Frank.  The Deputy Director would also be removable at will by the President.  Under Dodd-Frank, the CFPB Director is only removable by the President for cause.
  8. The CFPB would be an enforcement agency only. It would be stripped of its supervisory authority.
  9. The CFPB would only be authorized to enforce the enumerated consumer protection laws. It would have “no UDAAP authority of any kind.”  Under Choice 1.0, the CFPB would have retained the authority to enforce the “unfairness,” and “deception” prongs of UDAAP, but not the “abusive” prong.
  10. The consumer complaint database could not be published. Under Choice 1.0, the database could be published to the extent that complaints were verified.
  11. The CFPB would be stripped of its authority to monitor markets. Under Choice 1.0, it could continue to engage in market monitoring as long as such monitoring is “separate from enforcement.”

It has been reported that the changes outlined above will be reflected in a new Choice Act bill to be introduced before the end of this month.

While there is a reasonable likelihood that the Choice Act will pass the House, its fate in the Senate is very uncertain.  In light of the proposed changes to the CFPB’s structure and powers, one might ask why lawmakers have not proposed to combine the FTC and the CFPB. The proposed cutbacks on the CFPB’s powers would result in the two agencies having largely overlapping enforcement powers for non-banks.

Rep. Hensarling’s proposal for the CFPB to continue to be managed by a sole Director is contrary to the CFPB governance desired by many in the banking industry.  In a letter dated April 13, 2017 from Richard Hunt, President and CEO of the Consumer Bankers Association (CBA) to Senator Mike Crapo, Chairman of the Senate Committee on Banking, Housing and Urban Affairs and Senator Sherrod Brown, Ranking Member of that Committee, the CBA strongly advocated in favor of a bipartisan five-member commission.

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.

The Subcommittee on Oversight and Investigations of the House Committee on Financial Services has scheduled a hearing for tomorrow entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.”  The memo from the Committee’s Majority Staff to Committee Members states that “the [h]earing will examine whether the structure of the Bureau violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.”

The hearing will undoubtedly cover the same constitutional issues that are being briefed and will be argued on May 24, 2017 by the parties and their amici before the en banc D.C. Circuit in PHH Corporation v. Consumer Financial Protection Bureau, September Term, 2016, No. 7151177.

The following witnesses will testify:

  • Ted Olson, Partner, Gibson, Dunn & Crutcher, LLP
  • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
  • Adam White, Research Fellow, Hoover Institution
  • Brianne Gorod, Chief Counsel, Constitutional Accountability Center

Mr. Olson is lead counsel to PHH.

According to his bio on the website of the University of Virginia School of Law, Professor Prakash “focuses on separation of powers, particularly executive powers.”  As his 2013 law review article underscores, Professor Prakash strongly advocates in favor of robust Presidential powers. He is a colleague of Aditya Bamzai, an Associate Professor of Law at the same law school.  Professor Bamzai drew attention to himself when he posted a blog on November 22 of last year in the Yale Journal of Regulation and the ABA Section of Administrative Law & Regulatory Practice entitled “The President’s Removal Power and the PHH Litigation.”  We blogged about Professor Bamzai’s blog in which he argued that President Trump could lawfully remove Director Cordray without cause and need not await the outcome of the PHH case.

At the time of Professor Bamzai’s post, the D.C. Circuit had not yet granted the CFPB’s petition for rehearing en banc. The order granting the petition vacated the panel decision that held that the CFPB was unconstitutionally structured and severed the language from Title X of Dodd-Frank which enables the President to remove the Director only for cause, thus enabling the President to remove the Director without cause

It is unknown whether Professor Banzai still adheres to his opinion in light of the fact that the panel opinion has been vacated and, more importantly, whether Professor Prakash shares Professor Bamzai’s opinion.

Adam White’s bio describes Adam as a research fellow at Hoover Institution “writing on the courts and the administrative state for such publications as The Weekly Standard, The Wall Street Journal, Commentary, the Harvard Journal of Law & Public Policy…”  According to its website, “Hoover Institution seeks to improve the human condition by advancing ideas that promote economic opportunity and prosperity, while securing and safeguarding peace for America and all mankind.”  It is fair to characterize Hoover Institution as a conservative think tank.   Mr. White recently testified before the Senate Committee on Commerce, Science, and Transportation at a hearing entitled:  “A Growth Agenda:  Reducing Unnecessary Regulatory Burdens.”  In his testimony, he mentioned that he and his then law firm colleagues were co-counsel to a small community bank in State National Bank of Big Spring v. Lew which in a federal lawsuit challenged the CFPB’s structure as being unconstitutional.  We have blogged about that case on numerous occasions.

It seems clear that Brianne Gorod was chosen as a witness by the Democrats in order to balance the views of the other witnesses.  According to its website, the Constitutional Accountability Center “is a think tank, law firm and action center dedicated to fulfilling the progressive promise of our constitution’s text and history.  We work in our courts, through our government, and with legal scholars to preserve the rights and freedoms of all Americans and to protect our judiciary from politics and special interests.”

We will watch the hearing with interest and blog about it later this week.