While it’s too early to know the full impact of the United States Court of Appeals for the District of Columbia Circuit’s decision to rule the structure of the Consumer Financial Protection Bureau unconstitutional and vacate a $103 million fine against mortgage lender PHH, opinions from all sides are pouring in on just what the court’s decision could mean for housing and for the financial services industry as a whole.
In a statement, a CFPB spokesperson says that the agency “respectfully disagrees” with court’s ruling.
“The Bureau believes that Congress’s decision to make the Director removable only for cause is consistent with Supreme Court precedent and the Bureau is considering options for seeking further review of the Court’s decision,” the CFPB spokesperson said.
“In the meantime, as the court expressly recognized, the Bureau will continue its important work,” the spokesperson continued. “Congress has charged the Bureau with ensuring that the markets for consumer financial products and services are fair, transparent, and competitive and with protecting consumers in these markets from unlawful practices. Today’s decision will not dampen our efforts or affect our focus on the mission of the agency.”
PHH, on the other hand, is “extremely gratified” with the court’s decision.
“We are hopeful that the Court’s opinion will provide greater certainty to the entire mortgage industry regarding the industry’s reliance on long-standing regulation as to how to conduct business consistent with RESPA,” PHH said in a statement.
“Regarding the Court’s decision to remand the case to the CFPB to determine whether any mortgage insurers paid more than reasonable market value to the PHH-affiliated reinsurer, we will continue to present the facts and evidence to demonstrate that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects,” PHH concluded.
The CFPB has long been a target of Republicans on Capitol Hill. House Republicans are currently moving forward on a bill that would abolish the Dodd-Frank Act, the law that created the CFPB, and would dramatically change, if not abolish, the CFPB as well.
The law was introduced by House Financial Services Committee Chairman Rep. Jeb Hensarling, R-TX, and unsurprisingly, Hensarling is pleased with the court’s ruling.
“This is a good day for democracy, economic freedom, due process and the Constitution,” Hensarling said in a statement.
“The second highest court in the land has vindicated what House Republicans have said all along, that the CFPB’s structure is unconstitutional,” Hensarling continued.
“By design the CFPB is arguably the most powerful and least accountable Washington bureaucracy in American history, and it shows. The Bureau has infringed on the economic freedoms of consumers, limited their financial choices, increased their costs, and failed to hold managers accountable for widespread discrimination and abuse of its own employees. This must change,” Hensarling continued.
“The CFPB has an important mission. Properly designed and led, it is capable of great good. But the Bureau’s bizarre and defective structure allows it to evade the time-tested checks and balances that are necessary to hold it or any other government bureaucracy accountable,” Hensarling added.
“Our Constitution requires these checks and balances to protect our God-given liberties from government abuse. It is astonishing that the Democrats who voted for the Dodd-Frank Act so casually disregarded their constitutional obligations to the American people,” Hensarling said. “It’s also astonishing that President Obama illegally bypassed the Senate by appointing Richard Cordray to serve as the Bureau's Director. It is time to restore the rule of law and Constitutional governance to this nation. While I welcome today's decision, it’s absurd that a judicial opinion was necessary.”
“The Financial CHOICE Act replaces the current unaccountable single director with a bipartisan, five-member commission – which is how virtually every independent regulatory agency, including those responsible for consumer and investor protection, currently operates,” Hensarling said.
“Republican efforts in the Financial CHOICE Act to reform the Bureau are and have always been grounded in the fundamental belief that all government bureaucracies should be accountable to hardworking taxpayers, especially those bureaucracies like the CFPB that can spend hundreds of millions of dollars each year with no oversight or control from Congress or the executive branch; employ an army federal employees; and have a direct impact on the personal finances of virtually every American citizen,” Hensarling concluded.
Hensarling’s Democratic counterpart on the House Financial Services Committee, Ranking Member Rep. Maxine Waters, D-CA, said basically the opposite of Hensarling, as to be expected.
“The CFPB is a critical part of the Dodd-Frank Act and has returned nearly $12 billion to more than 27 million consumers by going after fraud at large banks like Wells Fargo,” Waters said.
“After years of industry and Republican attacks falsely claiming that the CFPB is unconstitutional and that it must be eliminated, it’s no surprise that a small panel of the country’s most conservative judges has made such an anti-consumer ruling,” Waters added.
“Nevertheless, the ruling does affirm the CFPB’s right to continue to pass new regulations and enforce consumer protection laws under a single director,” Waters said. “We will continue to watch closely as this case proceeds, but Americans know that the CFPB continues to do its important work on behalf of all consumers, regardless of special-interest efforts to dismantle it.”
Other operators within the financial services industry joined Hensarling in celebrating the decision.
“NAFCU urges an immediate moratorium at the CFPB on any rulemaking not already implemented,” said Dan Berger, the president and CEO of the National Association of Federal Credit Unions. “The bureau should also consider ceasing and desisting all rulemakings until the legality is resolved.”
The Mortgage Bankers Association also welcomed the decision and the clarification the decision presents for the Real Estate Settlement Procedures Act.
“MBA is gratified that the court has issued an extremely thoughtful opinion. It addresses all of the key issues raised by the PHH case, including the proper interpretation of the Real Estate Settlement Procedures Act, the need for due process including reasonable statutes of limitations and the very constitutionality of the CFPB itself,” MBA President and CEO David Stevens said.
“All that said, we recognize that the CFPB does important work to protect consumers and that this case is far from settled and expect the Government to continue to litigate it,” Stevens continued. “We will continue to fight on behalf of our members, particularly on the RESPA and due process issues, as they go to the heart of a core argument that MBA has been making for several years now – that lenders need clear, consistent and reasonable interpretations of the rules in order to be able to best serve their borrowers and contribute to a smoothly functioning real estate market.”
The Community Home Lenders Association agreed, as did the Credit Union National Association.
“The Community Home Lenders Association is encouraged by today's court ruling in PHH Corporation vs. the CFPB - both in terms of increasing accountability regarding the CFPB's governing structure and also with respect to restricting retroactive penalties for prior conduct,” the CHLA said in statement.
“I applaud the ruling from the U.S. Court of Appeals for the D.C. Circuit regarding the PHH case against the Consumer Financial Protection Bureau, in that it will establish a meaningful check and balance and bring needed accountability to the Director’s role,” CUNA President and CEO Jim Nussle said.
“This ruling confirms CUNA’s concern that the structure of the CFPB is flawed and that an unchecked, independent director who answers to no one can’t lead to good public policy,” Nussle said. “CUNA continues to support a five-person commission for the CFPB instead of its current structure.”
The National Association of Realtors also welcomed the decision’s clarity surrounding marketing service agreements, which are clearly a target of the CFPB.
“Today’s decision offers much-needed clarity on the legality of marketing service agreements, and makes clear that MSAs are compliant with RESPA provided that payment for goods and services actually furnished or performed are made at fair market,” said NAR President Tom Salomone.
“We’re hopeful this will address any uncertainty moving forward and offer a clear road ahead for any of our members who have entered into MSAs with settlement service providers,” Salomone continued. “We will continue to monitor this case and the further appeals that are likely, and continue to communicate to Realtors on what this means for them and their business.”
Other groups from in and out of the financial services industry didn’t look so kindly on the decision.
“Americans for Financial Reform is disappointed by the D.C. Circuit’s decision today. As the CFPB’s work to stop the Wells Fargo’s fraud demonstrated once again, the CFPB is doing exactly what Congress established it to do: serve as an effective enforcer of fair rules of the road to prevent unfair deceptive and abusive financial practices, practices that led to the financial crisis and cost trillions of dollars in lost homes, lost jobs, and lost wealth,” said Lisa Donner, executive director of Americans for Financial Reform.
“Precisely because the CFPB is achieving that mission, Wall Street banks, predatory lenders, and their allies have worked determinedly to undermine and defang it, including by compromising its decision making structure, independence, and authority,” Donner continued. “Compromising the CFPB’s independence would be a huge gift to Wall Street greed and a loss for consumers. We are hopeful that this erroneous decision will be overturned.”
Wade Henderson, the president and CEO of The Leadership Conference on Civil and Human Rights, called the decision “wrong” and questioned the timing of it.
“For years, the Consumer Financial Protection Bureau has cracked down on payday loan sharks, for-profit college scams, robo-filing debt collectors, shady overdraft charges, predatory home loans, and just several weeks ago, bank account fraud on a staggering scale,” Henderson said. “It’s not clear to us why this court chose this moment to side with those interests and against American consumers, coming so soon after the Wells Fargo scandal and so soon before the election. But today’s ruling, as poorly-timed and wrong as it is, will help Americans understand just what is at stake.”
Despite the decision, Hilary Shelton, the senior vice president for policy and advocacy of the NAACP Washington Bureau, welcomed the fact that that the CFPB will be able to continue operating.
“The mission of the CFPB, much like that of the FBI or the Environmental Protection Agency makes it imperative that it be able to take swift yet well-informed actions when they are warranted,” Shelton said.
“It is no surprise that the CFPB has been attacked and vilified in Congress and now in the courts by narrow special interests which had heretofore run amok and nearly ruined the global economy,” Shelton continued. “We are confident, however, that the crucial work performed by the CFPB will carry the day, and the NAACP remains committed to protecting the integrity of the Bureau.”
The left-leaning group Allied Progress called out the judges in the case and questioned the legitimacy of the decision.
“This decision really was no surprise, Allied Progress Executive Director Karl Frisch said.
“Judge Kavanaugh is a partisan activist with deep ties to corporate America. He cut his teeth in the conservative political movement and as a partner at one of the most popular law firms in corporate America – a place that bragged about its work surrounding ‘white collar crime,’” Frisch continued.
“Judge Kavanaugh’s reckless, partisan decision was written to appease his cronies on Wall Street and the right-wing political movement where he got his start,” Frisch added. “We have no doubt that it will be reversed by a full panel of his colleagues on the D.C. Circuit.”
The right-leaning group FreedomWorks Foundation had a different interpretation of the ruling.
“This ruling is an important statement affirming the constitutional separation of powers. No one man can wield power outside of any check or supervision by the other branches of the federal government. The Constitution still means something,” said FreedomWorks Foundation CEO Adam Brandon.
“While this ruling is a step in the right direction, it does nothing to address the overreach of the CFPB. This agency still represents a massive expansion of the federal regulatory state,” Brandon said. “It’s imposing new costs on Americans at time when the economy is still struggling to gain steam. While the unconstitutionally of the CFPB’s structure is addressed for now, the destructive regulatory impact of the agency continues.”