For anyone involved in the financial services industry over the last four years, the CFPB or Consumer Financial Protection Bureau has become a four letter word. This entity created by Congress as part of the Dodd Frank act passed after the financial collapse in 2008, was given broad jurisdiction to regulate all types of financial services, from banks to title companies to insurance agencies. However, in a ruling on October 11, 2016, the U.S. Court of Appeals for the District of Columbia Circuit found the structure of the CFPB unconstitutional because of the “concentration of enormous executive power in a single, unaccountable, unchecked Director who wields vast power over the U.S. economy.” The case (PHH Corporation, et.al. v. Consumer Financial Protection Bureau) can be found here. As it stands, the director of the CFPB is appointed by the President. This director can only be removed for cause, such as “inefficiency, neglect of duty or malfeasance.” This structure, with the President having no discretion for removal, was found unconstitutional in the PHH case.
The PHH case also vacated a $109 million penalty imposed by the CFPB finding the agency misinterpreted the applicable statute and then violated Federal Law. The issue in the PHH case was RESPA. This act protects consumers from undisclosed arrangements in real estate closings. The court found that RESPA was not violated by PHH mortgage and vacated the penalty. RESPA governs every residential real estate closing. For those who have purchased residential real estate, you may have noticed confusing changes to your closing statements. The CFPB has mandated these changes and others in its attempt to make closings more clear.
Further changes are in the wind as imposed by the CFPB that will cause many small businesses to close. The changes to RESPA have caused tremendous consolidation in the real estate industry and have made the barriers to entry extremely expensive. Similar changes in the banking industry caused by CFPB regulation have made community banks merge or close. These regulations can only lead to higher costs for all of us.
If you are involved in any financial service industry, feel free to call us about upcoming cases or regulations involving your industry. In addition, if you are facing a claim involving regulations adopted by the CFPB, let us know and if we can’t help we can point you in the right direction.