Oops! The Consumer Financial Protection Bureau Gets Slapped Down

I recently wrote about the Financial Stability Oversight Council created under Dodd-Frank legislation in 2010. A federal judge had ruled that the FSOC did not prove its case in determining that MetLife posed a “threat to financial stability.”

Enter the Consumer Financial Protection Bureau (CFPB), another unaccountable entity, thanks to Dodd-Frank.  In 2014, the CFPB claimed that mortgage lender PHH allegedly violated the Real Estate Settlement Procedures Act by allegedly receiving kickbacks from mortgage insurers in the form of reinsurance premiums. (I use the term “allegedly” because there is some question as to whether PHH actually did receive kickbacks and violate Section 8 of the RESPA.) In November 2014, an administrative law judge for the Securities and Exchange Commission ruled in favor of the CFPB and ordered PHH to pay a $6 million disgorgement. Cameron Elliott, the ruling judge in this case, is not known for sympathies for the defendants in his court. However, CFPB Director Richard Cordray decided that $6 million wouldn’t cut it and ordered PHH to pay a whopping $109 million. Incidentally, this money will not go to victims who were allegedly harmed by PHH, but to the Treasury.

PHH appealed the ruling, and two weeks ago they had their day before a D.C. Circuit Appeals Court.  The CFPB lawyer faced tough questions from the panel regarding the constitutionality of the Bureau and whether the CFPB’s interpretation of the Section 8 of the RESPA was correct based on previous legal interpretations.  The case should be decided in a few months.  It is not a slam-dunk win for PHH, but experts note that the questions posed to CFPB may seriously threaten the Bureau’s authority.

In another “glowing” moment for the CFPB, a U.S. District Judge ruled that the Bureau lacked authority to investigate how the Accrediting Council for Independent Colleges and Schools accredits for-profit colleges. While some of the colleges are under investigation for possible violations of fair lending practices, Judge Richard Leon ruled that the non-profit accreditation council itself had nothing to do with the lending practices.

As noted in an NCPA publication released last fall, the Consumer Financial Protection Bureau is “Constitutionally dubious.” The Bureau operates within the Federal Reserve System with a Director, currently former Ohio Attorney General Richard Cordray, who cannot be fired by the President except for cause.  Furthermore, the CFPB is not subject to annual appropriations from Congress, meaning limited Congressional oversight.  It seems that the only way to rein in its potential overreaches is through the courts.



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