Why Ruling Against The Bureau Helps Your Credit Union
You 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: Compensation Guidance, PHH Corporation v. Consumer Financial Protection Bureau.