The announcement of the Senate’s compromise over the confirmation of Richard Cordray as director of the Consumer Financial Protection Bureau could have immediate consequences for the CFPB’s Enforcement Division and for businesses that have been accused of violating federal consumer protection laws.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created the new agency, the CFPB’s enforcement authority was contingent on the proper appointment of a director. Although Mr. Cordray was appointed by President Obama through a “recess appointment” process, questions about the recess appointment raised doubts about the agency’s authority to pursue civil enforcement actions.
Those doubts were further fueled by the February 2013 decision of the U.S. Circuit Court of Appeals for the District of Columbia in Canning v. National Labor Relations Board, holding that the President’s recess appointment of three NLRB board members, made on the same day Director Cordray’s appointment, was “constitutionally invalid.”
Since Director Corday’s appointment, the Bureau has filed only two contested civil enforcement actions. All of the other 17 enforcement actions brought by the agency, including eight civil actions filed in federal court and nine administrative actions within the CFPB, consisted of stipulated resolutions where the parties agreed in advance to the financial and other terms of the settlements.
The Bureau filed the first of the two disputed actions, which also happened to be the first civil enforcement action brought by the CFPB against any defendant, in July 2012 against a Southern California attorney, his law firm and other defendants that offered loan modification services to consumers. In that case, the defendants have challenged the authority of the CFPB to bring these enforcement actions, including questioning the validity of Director Cordray’s recess appointment. The issue is currently fully briefed and awaiting action by the court.
In the other disputed action, filed by the CFPB in May 2013 against two debt settlement companies based in New York and New Jersey, the deadline for the defendants to respond has not yet come due. In light of the D.C. Circuit’s decision in Canning, however, it could be expected that the defendants will also raise challenges to the Bureau’s authority in their initial responses.
The Senate’s confirmation of the agency’s director eliminates any doubts about the recess appointment and the CFPB’s ability to initiate enforcement actions. Given that the CFPB has an extensive enforcement staff, including numerous experienced regulatory attorneys and paralegals, companies subject to CFPB jurisdiction should expect that CFPB enforcement activity will substantially increase in the immediate future and should prepare accordingly.
Two updates to this entry:
First, my understanding from the news this morning is that Mr. Cordray’s nomination has been confirmed by the Senate.
Second, the district court judge issued his ruling on the Southern California loan modification case that is referenced above. The judge denied the defendant’s challenge to the authority of the Consumer Financial Protection Bureau to bring a civil enforcement action against him in federal court, holding that the argument challenging the President’s recess appointment of Mr. Cordray was inadequately articulated and waived as a result.
The judge wrote in his minute order that:
“The Court has no occasion to pass on the constitutionality on Director Cordray’s appointment because [defendant] has provided insufficient argument concerning the potential ramifications of invalidating that appointment. Specifically, even assuming that Director Cordray’s appointment exceeded the President’s powers under the Recess Appointments Clause, [defendant] has not argued how, under the relevant statutes, that determination would prevent the CFPB from taking the actions it has in this instance. By failing to explain how, in the absence of a properly appointed or confirmed director, CFPB is unable to prosecute this action, [defendant] has waived the argument that the CFPB lacks the authority to pursue its claims against him even if Director Cordray’s appointment was unconstitutional…
“Because [defendant] has waived the argument that, even without a properly appointed or confirmed Director, the CFPB lacks the authority to pursue its claims against him, the Court has no need to address the constitutionality of Director Cordray’s appointment because any such holding would not resolve the issue of the CFPB’s authority to prosecute this action. The Court therefore declines to reach the merits of [defendant]’s attack on the constitutionality of Director Cordray’s appointment. Instead, the Court concludes that [defendant] has waived the argument that the CFPB may not act in the absence of a properly installed Director. [Defendant]’s arguments concerning the constitutionality of Director Cordray’s appointment are therefore an insufficient basis to deny the CFPB’s Motion for Summary Judgment or to grant [defendant]’s Motion for Summary Judgment.”
Thanks for the post, Michael. A separate question: Do you think the confirmation will speed a definition for larger nonbank participants in the auto finance space? Or, possibly, might the recent departure of Richard Hackett actually slow that process?
Thanks, Marcie. Since we have seen no hesitancy in the CFPB’s issuance of guidance to the auto finance industry and rules to the mortgage industry, I don’t have the sense that the CFPB has slowed down its activities in these areas while waiting for the director issue to be resolved.
On the other hand, there are a number of investigations out there that have been going on for quite awhile and have not been resolved through administrative or civil stipulated orders. My sense is that the CFPB has “held back” on filing those actions to avoid having its enforcement authority challenged by larger, better-funded defendants. Now that the appointment issue is resolved, I think it’s likely we’ll see a new group of enforcement actions filed in the near future. This could even include a discriminatory auto lending case against a finance company if the Bureau has sufficient confidence in its methodology for measuring potential “disparate impact.”
On the rulemaking/guidance side, my hunch is that the CFPB will continue moving forward with its agenda, slowed some perhaps by the loss of Mr. Hackett. However, the agency has shown a tremendous ability to recruit knowledgeable professionals, and they may already have others that are taking Mr. Hackett’s place.