Advocates, detractors at odds over CFPB

A Feb. 16, 2017, ruling by the U.S. Court of Appeals for the District of Columbia Circuit granted the Consumer Financial Protection Bureau the right to appeal an earlier decision by the court against the government agency. The court had ruled the bureau's very existence was in violation of the U.S. Constitution. Established July 21, 2011, as part of 2010 Dodd-Frank Act, the CFPB has broad authority to enforce financial laws. Its authority, autonomy and potential for legislative overreach has been a matter of concern on Capitol Hill.

In April 2016, PHH Corp. and concerned parties challenged the CFPB's constitutionality. The petitioners, a diverse group of mortgage lenders, financial institutions and trade associations, alleged the CFPB and select government entities such as the Federal Communications Commission "collectively constitute a headless fourth branch of government."

This "fourth branch of government," with massive power and operating without presidential supervision, poses a "significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances," plaintiffs stated. They cited a $109 million order by the CFPB against PHH Corp. as an example of legislative overreach.

"In seeking to vacate the order, PHH argues that the CFPB's status as an independent agency headed by a single Director violates Article II of the Constitution," plaintiffs stated. The court ruled in their favor in October 2016, but agreed to reconsider the ruling in Feb. 16, following the CFPB's appeal.

Chorus of nays

The CFPB has received harsh criticism on Capitol Hill, most recently from Sen. Ted Cruz, R-Texas, and Rep. John Ratcliffe, R-Texas, who introduced two bills Feb. 14, 2017 designed to eliminate the government agency.

Sen. Cruz calls for eliminating the CFPB in S.370; Rep. Ratcliffe's bill, H.R. 1031, recommends eliminating Title X of the Dodd-Frank Act, which formed the basis for establishing the independent bureau. The lawmakers claim the CFPB has created excessive bureaucracy, stunted economic growth and failed to protect consumers.

"The legislation that Rep. Ratcliffe and I are introducing today gives Congress the opportunity to free consumers and small businesses from the CFPB's regulatory blockades and financial activism, which stunt economic growth," Cruz stated. "While there's much more to do to scale back the harmful regulatory impositions of Dodd-Frank, this legislation takes a critical step in the right direction."

Rep. Ratcliffe added, "The CFPB's lack of accountability to the American people was quickly evidenced when – contrary to its name – it ended up hurting many of the very folks it was intended to help. While Sen. Cruz and I have been sounding the alarm on the CFPB's federal overreach for some time now, I'm optimistic at our renewed chances of advancing this effort with a willing partner in the White House."

Division, revision of power

Amid proposals for doing away with the CFPB, there are few recommendations for replacing it. S.370 calls for eliminating CFPB but does not offer alternative consumer protections. H.R.1031 was issued without any text other than its title: "To eliminate the Bureau of Consumer Financial Protection by repealing title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Consumer Financial Protection Act of 2010."

In the absence of recommendations, political analysts can only speculate about how consumer interests will be protected in a post-CFPB environment. Before the CFPB's inception, consumer protection was a collective effort of disparate government agencies with differing levels of authority.

"It's hard to imagine how repealing the CFPB would cut back on bureaucracy, when you consider how many agencies were formerly responsible for consumer protection," said a financial analyst familiar with the proceedings. "In fact, one of CFPB's biggest benefits is its resourcefulness in providing a one-stop-shop and faster remediation for a range of consumer credit and banking issues."

The analyst additionally noted that the CFPB is more than just a complaint bureau; the bureau provides practical and educational resources to consumers, as well as data, research and compliance guidelines to business owners.

If the CFPB were eliminated, a number of government agencies would continue to provide guidance on various consumer protection issues, as follows:

• Office of the Comptroller of the Currency protects financial institutions, federally chartered branches and foreign banks.
• Office of Thrift Supervision protects federal thrifts and thrift holding companies.

• National Credit Union Administration provides oversight to federal and state credit unions.
• Federal Reserve Board protects financial institutions and their nonbank subsidiaries, bank holding companies, state chartered member banks, edge and agreement corporations, branches and agencies of foreign banking organizations operating in the United States and their parent banks, Equal Credit Opportunity Act rulemaking, and electronic remittances, payment systems, and checks.

• Federal Deposit Insurance Corp. protects state-charted insured banks and insured branches of foreign banks.

• Federal Housing Finance Agency protects the mortgage industry through Federal Home Loan Banks, Fannie Mae and Freddie Mac.

• Department of Housing and Urban Development oversees real estate settlement procedures, FHA-insured mortgage loans and Fair Housing Act regulations.

• Department of Veterans Affairs protects veterans and oversees VA-guaranteed mortgage loans.

• Internal Revenue Service provides guidance, oversight and enforcement of tax filers and tax preparers.

• Federal Trade Commission provides oversight of nonbanks and debt collection services.

• Department of Defense oversees payday lending to active duty military and family members.

• Department of Justice enforces anti-fraud best practices and Fair Housing Act.

As proposed legislation makes its way through Congress, and the D.C. Circuit Court prepares to revisit the CFPB's constitutionality, consumer advocates point to the CFPB's accomplishments and remain cautiously optimistic about the agency's future.

"Will the agency that in a few short years has saved consumers $12 billion – and deterred a slew of rip-offs, scams and schemes that banks and financial predators avoided for fear of the CFPB – be able to continue to do its job?" said Robert Weissman, President of Public Citizen. "Or will the big banks get their way and have the agency neutered?"

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