The CFPB’s Worst Week
The CFPB doesn’t seem to have many setbacks. Until now. See AABD Legislative Counsel Jim Butera’s memo, Partner in the law firm of Jones Walker.
The Washington Post has a regular feature called Who Had The Worst Week In Washington? Last week’s prize should have gone to the Consumer Financial Protection Bureau (CFPB) for the combination of the following developments:
- First, the Senate Appropriations Committee approved legislation bringing the CFPB under the annual Congressional appropriations process. The House has passed identical language in the past, but this is the first occasion, with the Senate now under Republican control, that both bodies have voted to change the agency’s funding structure which currently relies on direct funding from the Federal Reserve. The appropriations bills to which these provisions are attached always form the basis for the year-end bill to which Congress and the President must agree in order to avoid a government shutdown.
- Next, the U.S. Court of Appeals for the District of Columbia Circuit ruled unanimously in favor of a Texas bank’s standing to challenge the constitutionality of the CFPB even though it has assets under the agency’s $10 billion examination threshold. In doing so, the court said “we leave it to the District Court to consider the significance of Director Cordray’s later Senate confirmation and his subsequent ratification of the actions he had taken while serving under a recess appointment.” This is a reference to the 2014 Supreme Court case which found that the January, 2012 recess appointment of Director Cordray to the CFPB was invalid, thus calling into question 18 months of prior CFPB actions from January, 2012 to July, 2013.
- Legislation was also introduced in the House and Senate to abolish the CFPB on the fourth anniversary of the creation of the agency (the agency had an effective date one year after the enactment of the Dodd-Frank Act). The sponsors are Sen. Ted Cruz (R-TX) and Rep. John Ratcliffe (R-TX).
- Finally last week, the Texas Bankers Association filed an extensive Freedom of Information Act request with the CFPB for all internal information leading up to the issuance of Orders to File Information to the major U.S. check processing companies regarding overdraft checking programs utilized by any FDIC-insured bank in the country. As if this sweeping third-party data request was not controversial enough, it was accompanied by at least one of the processors announcing that the cost of the data production would be passed on to its client banks.
While all these developments are unwelcome news for the CFPB, the prospect of being subjected to Congressional funding is the principal concern by far. First, this is an annual process entailing a set of Congressional legislative hearings and requirements separate from that of the committee with supervisory oversight. Federal regulatory officials must necessarily take an entirely different approach when dealing with a committee in control of their funding as, for example, the IRS is now learning. Moreover, the appropriations committees have also been known to use this annual exercise to shape (or halt) the expenditure of federal funds for specific regulatory initiatives. A recent example of that is a pending House Appropriations bill with a policy rider that would block enforcement of the net neutrality rules just promulgated by the Federal Communications Commission.
No one reasonably expects the CFPB to be abolished, but it is not unrealistic to envision the CFPB being placed under the Congressional appropriations process as part of the Continuing Resolution or whatever legislative vehicle is ultimately used to fund the government throughout Fiscal Year 2016. That will be a bill which the President must sign or unleash another episode of a potential government shutdown – something which neither party really wants to occur.
The federal fiscal year ends on September 30, but the expectation now is that there will be a bipartisan agreement to extend that deadline for another 60 days or so. As the Congressional session then draws to a close in December, the negotiations will begin in earnest between the White House and Republican Leadership in the House and Senate. All of this should make for a very interesting remainder of the year from the standpoint of the financial services industry be it the banking or the non-banking appropriations component.