Why Ruling Against The Bureau Helps Your Credit Union

October 12, 2016 at 8:56 am 6 comments

king-cordrayYou can be forgiven if, upon seeing the initial headlines yesterday morning  that the CFPB was ruled unconstitutional, you allowed yourself to drift into a world of no TRID, no HMDA amendments and  no short-term loan restrictions, and  you  are a  little disappointed  this morning with the news that, even with yesterday’s ruling  in PHH CORPORATION, ET AL., PETITIONERS v. CONSUMER FINANCIAL PROTECTION BUREAU, RESPONDENT, No. 15-1177, 2016 WL 5898801,(D.C. Cir. Oct. 11, 2016), the Bureau that never sleeps  is alive and well.  In the short- term this decision, if it is upheld by the Supreme Court, will have no impact on your compliance burden.

But don’t be too depressed. The Court’s ruling is a significant victory for those of us who believe that Congress gave too much power to one person. It makes the Bureau more accountable to the political process and, by implication, potentially more receptive to the concerns of the credit union industry.  It also clarifies some important RESPA issues that I will address in a future blog

The case dealt with the legality of a $109 million fine imposed on PHH by an administrative law judge after the CFPB alleged it was violating the anti-kickback provisions of RESPA. Originally PHH just wanted the fine vacated but in appealing the ruling it broadened its argument to challenge the constitutionality of the Bureau itself.  It argued that the separation of powers mandated by the  constitution was violated because the CFPB’s Director could only be removed by the President “for  cause.”  Congress has created, and the Courts have approved , independent agencies but these agencies have been overseen by boards of individuals;  not a single director empowered to promulgate whatever rules and take whatever enforcement actions he or she deems appropriate.

The Court agreed. “The single-Director structure of the CFPB represents a gross departure from settled historical practice. Never before has an independent agency exercising substantial executive authority been headed by just one person.” It  ruled that the CFPB as structured was unconstitutional.

But its remedy was as simple as its application of precedent was straightforward: Rather than disband the Bureau it simply invalidated that portion of Dodd Frank which stipulated that the Director could only be removed “for cause.” This means that the President could give Director Cordray  his walking papers today, no questions asked.

Does this matter to you? In the long-term I think it does. I am fond of calling the Director the Benign Dictator of Consumer Protection. From now on credit unions can blame the president for not doing enough to distinguish between the Big Banks and credit unions.  And it’s probable that an agency no longer insulated from politics will be more willing than the Bureau has been  recently to listen to  legitimate  industry concerns before promulgating regulations in the first place.

Frankly, the Bureau has grown more arrogant and intrusive with each passing month. Anything that constrains the actions it can take is a step in the right direction.

NY Issues Incentive Based Compensation Guidance

The only regulator pumping out mandates quicker than the CFPB lately is New York State’s Department of Financial Services. That’s not a good thing for those of us who want to maintain a viable state charter.

Reacting to the Wells Fargo Account Opening Scandal, the DFS released a guidance yesterday on Incentive Compensation Arrangements applicable to state chartered banks and credit unions.  Here is one of its highlights:

“The Department advises all regulated banking institutions that no incentive compensation may be tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer without effective risk management oversight and control.”

On that note get busy implementing all those Bureau regulations. I hope I see you this week at the Economic Forum.


Entry filed under: General, Legal Watch, New York State. Tags: , .

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6 Comments Add your own

  • […] CFPB are challenging a decision by the federal Court of Appeals for the District of Columbia, which found that the CFPB was only Constitutional if its Director could be hired and fired at will by the President. PHH Corp. v. Consumer Fin. Prot. […]

  • […] order. In addition,  whether or not the CFPB is subject to the order depends on the outcome of an ongoing legal challenge claiming that the Bureau cannot be an independent agency if it is overseen by a single director. […]

  • […] Financial institutions saw the impact of this deference when the Department of Labor decided that mortgage originators were nonexempt employees who must be given overtime pay and the Federal Reserve was given broad discretion to devise the interchange fee cap imposed on the debit card transactions imposed on larger financial institutions.  The CFPB had broad discretion in its reinterpretation of RESPA. […]

  • […] Administration submitted a brief arguing that this decision should be upheld. If the court’s earlier decision is upheld, the Trump Administration will have all the authority it needs to effectively fire […]

  • […] there is the granddaddy of them all. As readers of this blog know, in PHH Corporation, et. al. v. CFPB, the issue being litigated is the very constitutionality of the Bureau. Specifically, the Court of […]

  • 6. CFPB Gets Interesting Again | new york's state of mind  |  September 19, 2019 at 9:23 am

    […] First, let’s get up to speed on the issue of the CFPB’s constitutionality. Starting with the D.C. Circuit’s short lived majority opinion by then-Judge Kavanaugh, opponents of the agency have argued that the director of the CFPB should serve at the will of the President. In contrast, the director can only be removed for cause, meaning that he or she can act independently of the President. I delve more into the constitutional issues in this blog. […]


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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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