The future of the CFPB is one of the hottest hot topics in the post-election environment. Created by Title X of the Dodd-Frank Act (DFA), the CFPB has been the centerpiece of consumer-related financial reform — and the focus of controversy from industry stakeholders.
Fate of CFPB and Its Leadership
- Will the CFPB be immediately disbanded by the new Congress and President?
Unlikely. In order for that to happen, Congress (with Presidential signature, or override of Presidential veto) would have to enact legislation that withdraws Title X of the DFA completely (or repeals DFA as a whole). To date, complete repeal of DFA has not been articulated as an agenda item by the President-elect or by Republican leadership. Nor has recent rhetoric focused on complete dissolution of the CFPB.
- What will happen to the CFPB’s structure?
The outcome of a case called PHH v. CFPB will be impactful to this question. The “single director” structure of the CFPB has been target of criticism by some industry participants, who have claimed that such a structure is un-Constitutional or otherwise improper (although the OCC has a similar structure). This view has been most robustly evaluated in the case of PHH v. CFPB, a case involving fines assessed by the CFPB for RESPA violations. The case addresses not only the legitimacy of the fines, but the structure of the CFPB, with its single Director that cannot be removed before the end of his/her term except in extremely limited circumstances. A panel of the DC Circuit found the structure improper, and struck certain language from DFA regarding the Director’s tenure; the result, if upheld, will be that the President could remove the Director without cause. However, this result is stayed pending a final outcome of the case, and so the Director is not immediately removable by the President as of this writing. Next stop for the case will be en banc hearing by the full DC Circuit. Speculation is that it could ultimately reach the US Supreme Court.
The new Congress also could amend the language of the DFA to explicitly state that the Director serves at the pleasure of the President (as is the case with many other political appointees) or otherwise change the term/tenure of the Director, and/or change the structure of the CFPB to, for example, be governed by a multi-person Board.
For now, Richard Cordray remains in his position as the sole Director of the CFPB. His term is set to expire in July 2018.
- Will CFPB Director Richard Cordray be out of office as of January 21, 2017?
As discussed above, it is not clear that the President could immediately remove and replace the CFPB Director at this point without cause, unless PHH has further played out by that time. It is possible that Congress could ultimately change the structure of the CFPB, and/or the tenure of the Director, in a way that could result in Director Cordray’s exit.
Another factor that could impact his departure before his term expires in July 2018: some have speculated that he may resign his position in order to run for Governor of Ohio. As of this writing, he has not publicly disclosed his intentions.
Fate of Recently Issued Rules
The CFPB has issued a number of final regulations this past year. Many are asking what will happen to these rules.
- What happens if Congress transfers rulemaking authority for one or more statutes away from the CFPB and (back) to one or more other agencies?
If Congress amended DFA to take a statute out of the list of “enumerated consumer laws” for which the CFPB has rulemaking authority, authority would revert back to the original “owner” (such as the Fed), so to speak, unless Congress specified a different agency for it to go to. The new owner would have rulemaking authority going forward.
Some of the rulemaking authority transferred to the CFPB was previously held by the Fed (e.g., for the Truth in Lending Act (TILA) and Electronic Fund Transfer Act (EFTA)), while other authority was previously shared by multiple banking agencies (e.g., for the Gramm-Leach-Bliley Act (GLBA) privacy provisions) or by the U.S. Department of Housing and Urban Development (HUD) (for the Real Estate Settlement Procedures Act (RESPA)).
Some statutes had no explicit rulemaking authority until the CFPB was given such authority — in particular, the Fair Debt Collection Practices Act (FDCPA) — and, unless Congress specified a new agency for that authority to be transferred to, presumably no agency would have rulemaking authority. This raises the question of whether there could be “orphan” regulations issued by the previous agency that no longer have an agency to administer them. The CFPB has not yet issued rules under the FDCPA, so that issue may well be avoided for now. Currently, there are no regulations implementing the FDCPA. If that remains the case, it could potentially have some negative consequences for debt collection industry participants, as the FDCPA contains multiple ambiguous terms that could be helpfully clarified through rulemaking. Of course, they could also be clarified through amendments by Congress to the statute.
- Can Congress invalidate recently issued rules?
In addition to Congress’ ability to repeal or amend legislation that authorizes such regulations, Congress could use a little-used statute called the Congressional Review Act to prevent some of the regulations from ever taking effect.
Under this federal statute, enacted in 1996 as part of the Republican “Contract with America,” Congress has some authority to pass a resolution repealing regulations that have been recently issued (approximately within the past 60 days, but subject to various steps of calculation). However, this authority has been used successfully only once in history (in 2000, to overturn an OSHA ergonomics rule). The Congressional Research Service (CRS) of the Library of Congress posits that one reason for this is that the narrow time window typically means that the Congress is attempting to overturn a regulation issued by the Administration of the current President, and thus the President is almost certain to veto the resolution, meaning that a two-thirds majority of both Houses of Congress would be needed to override that veto. However, in a Trump administration a narrow window post-inauguration could potentially be used where a new Republican-majority Congress could pass such a resolution and the President could sign it.
The CRS estimates that rules issued since June 13, 2016 could be vulnerable. However, they also note that that day count is not set in stone. Also, CRS day count estimates are unofficial and nonbinding. The House and Senate Parliamentarians are the sole definitive arbiters of the operation of the CRA mechanism and should be consulted if a formal opinion is desired.
See the CRS’s reports on this topic at:
- Can a New Administration Undo a Previous Administration's Regulations? (CRS Report for Congress) (Nov. 21, 2016), available at https://fas.org/sgp/crs/misc/R43992.pdf
- Agency Final Rules Submitted on or After June 13, 2016, May Be Subject to Disapproval by the 115th Congress (CRS Report for Congress) (Dec. 15, 2016), available at https://fas.org/sgp/crs/misc/IN10437.pdf
- Which rules are vulnerable to this process?
The final rules issued by the CFPB since the June 13, 2016 date cited by the CRS include the following:
- Prepaid Accounts under the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z) (Oct. 5, 2016)
- Servicing amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) (major amendments, including provisions regarding loss mitigation, early intervention, periodic statements, successors in interest, debtors in bankruptcy, and borrowers who send a cease communication request under the FDCPA). (Aug. 4, 2016)
- Servicing Safe Harbors from Liability under the FDCPA for Certain Actions Taken in Compliance with Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) (issued in connection with the above rulemaking) (Aug. 4, 2016)
The list also includes non-substantive rules making statutorily required periodic adjustments to dollar amount thresholds, making clerical corrections, and similar subject matter. A continually updated list of final rules issued by the CFPB is available on the CFPB’s website at http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/.
- If Congress transfers rulemaking/enforcement authority for a given statute to a different agency, what happens to a rule newly issued under that statute?
The new “owner” of rulemaking authority for a given statute would inherit any final rules issued by any other agency under that statute. It would then be up to the new owner (within the bounds of the new owner’s authority, and following the Administrative Procedure Act (APA) and all other applicable requirements) to issue new, additional rules, withdraw the recently issued rules, or do nothing.
One administrative, non-substantive change the new owner would need to make is to announce the re-location of the regulations to that agency’s segment of the Code of Federal Regulations. This is what the CFPB did when taking over regulations from the Fed and other agencies and renumbering them to the CFPB’s segment of the CFR (for example, Regulation Z, formerly under Fed authority, was renumbered from 12 CFR part 226, in the Fed’s rules, to 12 CFR part 1026, in the CFPB’s rules). Substantively, they stayed the same (until changed through notice-and-comment rulemaking); they were just renumbered. This was done through a Federal Register notice.
Fate of Pending Rules
- What would happen to CFPB rules that are pending and not yet final?
As of this writing (January 19, 2017), the CFPB’s pending rules include the following. (These are the most significant pending rules; there are also other more procedural rules pending, such as those relating to the FOIA process.)
- Arbitration Agreements
- Payday/Vehicle Title/Certain High-Cost Installment Loans (Small-Dollar Lending)
- TRID Amendments (integrating guidance, providing clarifications/technical amendments; not a major reworking of TRID)It is not clear whether the new “owner” of rulemaking authority could simply choose to finalize a rule as proposed by the CFPB without issuing a new Federal Register notice and opening a new public comment period. This did not occur in the transfer of authority to the CFPB. When the CFPB took over rulemaking authority, there were certain rules pending with the Fed that the Fed either finalized itself before transfer or chose to abandon rather than finalize. The CFPB did not finalize any such rules without first issuing its own proposal. From a practical perspective, the new owner (who may be the former owner) of rulemaking authority is likely to want to put its own spin on the rule and thus would almost certainly want to re-propose the rule so that it can tailor it to its own preferences (even if only minor changes are made).In addition, there are rulemaking processes underway at the CFPB that have not yet resulted in proposed rules, such as under the FDCPA. In those cases, it would be up to the new owner agency to decide the course to take for those projects — whether to take them up, change course, or drop a project altogether (though within any parameters set by the law as it stands — for instance, if the law stated that the agency shall issue rules on a certain topic, that new agency would have that obligation. If, by contrast, the rulemaking were carried out on a discretionary basis, under the agency’s general rulemaking authority under a statute, the new agency would have complete discretion to decide to drop the rulemaking altogether).