Consumer Bureau Comes Under Fresh Attack

By Charles S. Clark

February 14, 2014

Thirty months after it opened its doors, the Consumer Financial Protection Bureau is still fending off efforts to weaken its powers, or declare it unconstitutional.

Last month, the Supreme Court heard oral arguments in a case dissecting the Senate’s recess appointments power, which, if the Obama administration loses, could jeopardize regulations on the books.

On Tuesday, the State National Bank of Big Spring, Texas, joined with 11 Republican state attorneys general and two banking advocacy groups in filing briefs to appeal a district court ruling from August 2013 that had dismissed their suit against the CFPB, the Treasury Department-based Financial Stability Oversight Council and several government officials. The plaintiffs had argued that parts of the 2010 Dodd-Frank Act Wall Street Reform and Consumer Protection Act that empowered the CFPB and FSOC were unconstitutional. 

And on Wednesday, the House passed a rule preparing for floor debate on the 2013 Consumer Financial Protection Safety and Soundness Improvement Act (H.R. 3193). Introduced by Rep. Sean Duffy, R-Wis., that bill is aimed at promoting consumer privacy, curbing the director’s discretion and altering the bureau’s budget by giving it an annual congressional appropriation in place of its current funding from the Federal Reserve.

The legislation would also authorize the chairman of the Financial Stability Oversight Council to set aside any regulation issued by the CFPB by majority vote; require the council to set aside any regulation it decides is inconsistent with “the safe and sound operations of U.S. financial institutions;” and require the CFPB director to consider any regulation’s impact on the financial safety or soundness of an insured depository institution.

“The Consumer Financial Protection Bureau is collecting data and information on almost one billion credit cards,” Duffy said in a Wednesday statement. “Do you think they’ve asked the American people’s permission to take their financial data? Absolutely not.”

The White House on Monday had already issued a veto threat in anticipation of House action, saying the bill would “undermine critical Wall Street reforms and weaken important consumer protections, potentially exposing the nation's economy to systemic risks similar to those that led to the 2008 financial crisis.”

The Office of Management and Budget’s statement summarized the CFPB’s accomplishments over the past two and a half years, praising it for having set “safer national mortgage standards to protect borrowers, begun to implement protections governing non-mortgage products, improved disclosure requirements so that consumers are better informed, created a national consumer complaint center that has handled nearly 270,000 consumer complaints to date, secured more than $3 billion in relief for nearly 10 million consumers through enforcement actions against bad actors who violated the law, and established federal oversight of important financial industries for the first time, including nonbank mortgage lenders, payday lenders, debt collectors, and credit reporting agencies.”

The bill’s prospects in the Democratic-controlled Senate are viewed as slim.

The banking industry lawsuit -- one of several -- is proceeding in the U.S. Appeals Court for the District of Columbia Circuit with argumentation on procedural issues before the parties can revisit their original case, which argued that the CFPB’s structure violates the separation of powers. The district judge had found the plaintiffs’ claim of harm either self-inflicted or hypothetical.

C. Boyden Gray, the co-counsel to the plaintiffs who was White House Counsel for President George H.W. Bush, told Government Executive that the government’s response to his clients’ complaint is due Feb. 28 and that he hopes to get to oral arguments on the procedural questions by the end of summer.

The CFPB in the long term, in Gray’s vision, would “still exist but with differences in its governance structure.” The Duffy bill’s provision replacing the director with a multi-member commission might not “satisfy everything we’re worried about but would help,” he said. “It would mean more accountability, more ample judicial review and congressional oversight.”

The lawsuit cites some of the  “burdensome regulations as examples of how the [Texas] bank has been hurt, but right now it has no way to complain about the mortgage regulations, which took them out of the mortgage business,” Gray said. “There’s no way to appeal because they can’t go to Congress and use the budget process to change the agency’s structure, nor can they go to court.”

Attaching riders to an appropriations bill telling an agency what to do is not an uncommon way for the public to change it to correct problems, Gray added. “An agency that knows more about the mortgage business might have done it differently.” 

CFPB declined to comment. 

By Charles S. Clark

February 14, 2014