Auto finance companies are closely watching a regulatory case that held its first oral arguments yesterday, which will determine the leadership structure of the Consumer Financial Protection Bureau and the speed with which a Donald Trump administration can enact financial regulatory policy.
The U.S. Court of Appeals for the District of Columbia’s 11-judge panel — six appointed by democratic presidents and five appointed by republicans — appeared divided along party lines, according to news accounts and Shannon McNeal, an associate at Hudson Cook LLP who attended the hearing. The panel is reconsidering an earlier decision in the 2-1 ruling last fall that determined the CFPB’s single-director structure unconstitutional.
Judges more inclined to side with the CFPB were more vocal during the hearings and even some republican appointees posed questions that seemed to favor the regulator, McNeal told Auto Finance News.
“There were some that just didn’t say much or didn’t say anything at all, but those who were vocal, their position seemed to suggest that the CFPB’s structure was not unconstitutional,” she said. “Even the judges who seemed inclined to side with PHH’s position that the CFPB has used immense enforcement powers and has gone largely unchecked, even they seemed to ask questions that suggest they didn’t see a constitutional issue.”
However, she added that just because the questions centered around the constitutional issues, doesn’t mean the eventual ruling couldn’t have a different justification.
Theodore Olson, an attorney whose mortgage company client PHH Corp. brought the case against the CFPB, argued that a five-year term limits the ability of the president to change financial regulation policy, according to a recording of the hearing. Richard Cordray, the first CFPB director and appointed under President Barack Obama, is set to hold his term until July 2018, and many republicans and industry executives would like to see him gone before then, in order to loosen financial regulations.
However, Judge Patricia Millett, an Obama appointee, questioned how a five-year term is different from a rotating, multi-member entity, such as the Federal Reserve Board.
“The Federal Reserve Board [has] 14-year terms, and there are seven members so no president has the authority to appoint a majority, therefore [no] control to have their policies reflected,” she said during the hearing. “Those people are removable for inefficiency, for malfeasance in office, for neglect of duty — but [they are not] removable because the president disagrees as a policy matter.”
Republican-appointed judges such as Brett Kavanaugh, who authored the prior opinion finding the bureau violated the U.S. Constitution, asked if it’s right to let the “dead hand of the past president” continue to dictate policy decisions.
No ruling was made yesterday and McNeal said she doesn’t expect a decision until early 2018.