1. Are CFPB Financial Industry Reforms in Danger?

    For consumer advocates – and many consumers themselves – the Consumer Financial Protection Board has had a banner year. Mandated by the Dodd-Frank Act to regulate consumer protections across a broad range of financial products and services – from mortgages to payday loans to foreclosure relief services to debt collection, and everything in-between – the CFPB has put into place nearly 30 separate rules and regulations since Richard Cordray was appointed on January 4, 2012 to head up the agency by President Obama.

    But a recent court ruling calls many of those actions into question. 

    On January 25, the DC Circuit Court of Appeals found that President Obama’s recess appointment of two National Labor Relations Board members was unconstitutional. Why does this matter to the CFPB? Because Richard Cordray was nominated in the same manner (and on the same day!), so it’s likely that his appointment will also be challenged on the same constitutional grounds. 

    What would that mean for the work of the CFPB to date? A few possibilities:

    1. Implementation of new rules could be delayed until the next director is approved:

    “The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (Dodd-Frank), which created the CFPB, provides that although the agency could, without a director, exercise the powers that were transferred to it from other federal agencies as of July 21, 2011, the ‘new’ powers that were granted to the agency, including the authority to supervise smaller depository financial institutions (banks, thrifts, savings associations, and credit unions with $10 billion or less in assets) and covered nondepository financial institutions (including payday lenders, mortgage lenders and servicers, and student lenders) would not become effective until the agency had a director approved by the Senate.” (Loeb & Loeb

    2. New CFPB regulations could be found invalid:

    “Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), which established the Bureau, the Bureau was to obtain authority to supervise and regulate certain persons and entities only after a Director was appointed and confirmed… If the reasoning in the D.C. Court’s ruling is adopted in a challenge to Director Cordray’s appointment or in a challenge to the Bureau’s actions, a number of supervisory and regulatory actions taken by the Bureau could be found invalid.” (Foley & Lardner

    3. Cordray’s appointment could be rejected but the agency’s work still stands:

    “Courts may find that the actions taken by an invalidly appointed agency official are nonetheless valid, citing the so-called ‘De Facto Officer Doctrine.’ The De Facto Officer Doctrine is an equitable doctrine that courts invoke from time to time to prevent chaos due to invalid appointments. Although the De Facto Officer Doctrine is by no mean automatic, and should only apply in extenuating circumstances, courts have some leeway to ratify actions already taken by Cordray as Director.” (Morrison & Foerster

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    Time will tell. Until then, one thing to keep in mind, from Morrison & Foerster

    “Despite the serious questions [Canning v. NLRB] raises, it is important to note that, as yet, no court has invalidated Mr. Cordray’s appointment or any of the CFPB’s subsequent actions. As a result, all CFPB regulations and orders remain presumptively legal and valid for now.”

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    The updates:

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    Further reading:

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