REFinBlog

August 10, 2015

Is the CFPB Unconstitutional?

DepositAccounts.com quoted me in Old Court Case Puts Consumer Financial Protection Bureau on Hot Seat. It reads, in part,

here is such a thing as a second act. Even court cases can be resurrected from the dead. Two years after State National Bank of Texas called the Consumer Financial Protection Bureau on the carpet, challenging its constitutionality in a case that was dismissed by a federal court, the D.C. Circuit court breathed new life into the debate when it reopened the case and concluded that State National Bank has legal legs to stand on and can sue, despite the fact that it is not directly supervised by the agency.

Although the D.C. Circuit court didn’t buy all of the bank’s claims, the court didn’t dismiss the bank’s claims that the CFPB should be run by a commission, instead of a single director, nor did it shoot down the bank’s contention that CFPB’s Director, Richard Cordray was improperly appointed during a Congressional recess.

“The proper ruling is that a recess appointment requires the Senate to be in recess. The Senate should determine whether it is in recess by its own rules. So a unilateral decision by the executive branch that the Senate is in recess should be disregarded,” says lawyer David Rubenstein who owns CreditShout.com and CreditForums.com.

“The solicitor general’s office will argue that this is a political question and should not be decided by the courts. If the recess appointment is struck down, then any rules and regulations passed by the CFPB also need to be struck down. Courts generally try to avoid this kind of mess. So you may see some sort of compromise,” he adds.

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Why the case matters

As for this case, scoffs [U.S. PIRG consumer program director] Mierzwinski, “Its proponents climbed a very low bar (standing to sue) to get the case reopened. Most experts on both sides think the odds of them actually winning are very low – achieving their sketchy Constitutional claims on the merits is an extremely high bar.”

The case is significant, says Brooklyn Law School professor David Reiss, “It is opening up a new can of worms for the CFPB and the consumer finance industry. But the court defers on the meat of the matter as it remands the case ‘to the District Court for it to consider the merits of the claim.’”

Reiss contends that cases such as this increase uncertainty for regulated companies, and for their customers. “Until the case is decided and the new regulatory environment becomes clear, we should expect more caution in the development of new consumer finance products and services,” says Reiss.