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From Banking and Finance Law Daily, October 12, 2016

CFPB allies, detractors respond to PHH decision on bureau structure

By Colleen M. Svelnis, J.D.

Many members of Congress and industry associations immediately responded to the U.S. Court of Appeals for the District of Columbia Circuit’s decision that the Consumer Financial Protection Bureau’s single-director structure is unconstitutional for an independent agency. The court, in PHH Corporation v. CFPB, did not strike down the entire agency, instead ruling that the President must be deemed to have the authority to discharge the director at will and without cause.

The court also rejected the bureau’s claims that there is no statute of limitations that restricts its ability to enforce the Real Estate Settlement Procedures Act against a mortgage lender that was accused of taking illegal kickbacks. To successfully show a RESPA violation by PHH Corporation, the bureau will need to prove that mortgage insurers paid PHH-affiliated reinsurers above-market premiums less than three years before the enforcement action was initiated (seeBanking and Finance Law DailyOct. 11, 2016).

PHH responds. In response to the decision that vacated the CFPB order for the company to disgorge $109 million in reinsurance premiums, PHH released its Form 8-K filing for the Securities and Exchange Commission. The filing stated that the company "does not expect the decision of the Court of Appeals to have any significant impact on its legal and regulatory reserves or estimates of reasonably possible losses in excess of such reserves." Also released was a statement by PHH expressing gratitude for the decision, the company also indicated hop that the opinion would "provide greater certainty to the entire mortgage industry regarding the industry’s reliance on long­standing regulation as to how to conduct business consistent with RESPA."

Victory for accountability? Senator Richard Shelby (R-Ala) called the court’s ruling "a victory for accountability," but said it was "meaningless without a President who is willing to rein in the unmatched authority of the CFPB’s Director." Senator Tom Cotton (R-Ark) urged CFPB Director Richard Cordray to uphold his earlier promise to abide by the court ruling." According to Sen. David Vitter (R-La), a vocal critic of the CFPB, the bureau "needs to be dismantled and reformed, and this decision is an important step toward protecting consumers and businesses."

Senator Sherrod Brown (D-Ohio), Ranking Member of the Committee on Banking, Housing, and Urban Affairs, disagreed with the opinion, stating that the bureau’s structure "works." Brown also called the CFPB one of the "most accountable financial agencies." Senator Elizabeth Warren (D-Mass) called the opinion "bizarre" and stated it would likely be overturned on appeal. Warren also clarified that the ruling "makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present, or future actions of the CFPB."

House Republicans. Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) called it "a good day for democracy, economic freedom, due process and the Constitution." Hensarling said the opinion vindicated what House Republicans have said about the CFPB structure. Hensarling and Rep. Sean Duffy (R-Wis) pointed to the Financial CHOICE Act (H.R. 5983), which would replace the current single director structure with a bipartisan, five-member commission. Ranking Member Rep. Maxine Waters (D-Calif) stated she was not surprised that "a small panel of the country’s most conservative judges has made such an anti-consumer ruling."

Republicans Reps. French Hill (Ark), Scott Garrett (NJ) and Andy Barr (Ky) also praised the ruling, with Barr promoting his bill, The Taking Account of Bureaucrats’ Spending (TABS) Act (H.R. 1486), which would move funding for the CFPB into the Congressional appropriations process. H.R. 1486 was included in the Financial CHOICE Act.

Commission instead of Director. The Consumer Bankers Association agreed with the decision, and said Congress should create a commission to run the agency, in place of a sole director. The American Bankers Association stated a five member commission would "strike a reasonable balance between independence and accountability." The Independent Community Bankers of America also supported the ruling "that the CFPB overstepped its bounds and overturned longstanding administrative guidance without notice in its action against PHH."

In a statement, the U.S. Consumer Coalition stressed that "Congress must pass comprehensive Dodd-Frank reform that includes an overhaul of the CFPB, including a change in the leadership structure, bringing the agency under the traditional congressional appropriations process, and subjecting it to the same anti-discrimination standards as other federal agencies and private corporations."

Threatens consumer interests. Public Citizen released a statement declaring that the opinion "threatens the ability of the agency to be a tough protector of consumer interests."

Americans for Financial Reform was "disappointed" by the ruling and stated that the CFPB is doing exactly what it supposed to: "serve as an effective enforcer of fair rules of the road to prevent unfair deceptive and abusive financial practices."

According to a Better Markets statement, the court’s decision was "not wise" and affects the ability of the CFPB to be a powerful consumer watchdog. A statement by Allied Progress called the decision "reckless" and "partisan" and expressed "no doubt" it would be reversed on appeal.

Companies: Allied Progress; American Bankers Association; Americans for Financial Reform; Better Markets; Consumer Bankers Association; Independent Community Bankers of America; PHH Corporation; Public Citizen; U.S. Consumer Coalition

MainStory: TopStory CFPB DistrictofColumbiaNews DoddFrankAct Mortgages RESPA

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