Not ‘As You Wish’ Goes the CFPB

Henry Meier, The Law Firm of Henry Meier

The Consumer Financial Protection Bureau’s (CFPB) legal status reminds me of The Princess Bride. The administration insists that the CFPB continues to conduct all legally required operations, even as it cancels the Bureau’s Washington lease. And, while Elon Musk publicly proclaims the CFPB shall rest in peace. If it’s not dead, it certainly is ‘mostly dead.’ It is the legal equivalent of being in a medically induced coma.

So, what does this mean for your credit union? Here are some considerations to keep in mind.

1. The fate of the CFPB is relevant to your credit union, whether you have $10 billion or $50 million in assets. While only the big guys get supervised by the CFPB, all credit unions must comply with relevant federal consumer laws and regulations. The Dodd-Frank Act made the CFPB responsible for interpreting these laws on behalf of consumers, other federal regulators and state officials.
2. The CFPB cannot be eliminated without an act of Congress. As aggressively as the Trump Administration is interpreting its authority to issue Executive Orders in court filings, it is not suggesting that it has the ability to do away with agencies created by Congress. In fact, on Tuesday, a hearing was held in DC so that a federal district court judge could hear competing claims about how much or how little the Bureau is doing.
3. Suppose the CFPB ultimately decides to do only what is necessary to comply with its statutory requirements. In that case, a mechanism is in place for federal consumer laws to still be enforced. Dodd-Frank addressed this possibility. Specifically, 12 U.S.C. § 5552 (2)(A)(1) gave state Attorneys General authority to enforce federal consumer protection laws within their jurisdictions independently. In Pennsylvania v. Navient Corp., 967 F.3d 273, 283 (3d Cir. 2020), the Court of Appeals for the Third Circuit affirmed a straightforward reading of this provision. As a result, your credit union is still subject to federal consumer protection law, and there is a mechanism to enforce it against your credit union, should your state’s Attorney General be so inclined. 
4. In a nod to federalism, state officials can only enforce federal regulations against federally chartered banks. Presumably, this provision was put in place to prevent states from implementing varying interpretations of federal law on financial institutions. As drafted, this restriction does not extend to federally chartered credit unions. 

Once the new director is confirmed, I hope and assume that one of their first actions will be to reinterpret the CFPB’s UDAAP authority. This would be welcome news since this authority has been used as a predicate for imposing a wide range of restrictions without going through the meddlesome process of publishing regulations and getting feedback from interested stakeholders. One potential legal dispute could be deciding whether the states’ Attorneys General can independently exercise the CFPB’s UDAAP power. The CFPB, under previous Director Chopra, took the position that states have this authority, but whether the courts would agree is an open question.

Congress could, of course, take decisive action in this area. For example, if it came down to a simple majority vote, it might be willing to repeal Dodd-Frank and its accompanying regulations. But don’t get your hopes up because unless major agency reforms can be included in the budget reconciliation process, which they most likely cannot be, the CFPB is not going away. This is why Congress should reform but not eliminate the Bureau. And even that is a highly unlikely possibility. 

Which brings us back to those core constitutional and legal questions that need to be resolved. These include: 

• How much authority does a president have to oversee and direct independent agencies? 
• Does the president’s obligation to see that the laws of the land are faithfully executed mandate that agencies created by statute receive a baseline amount of funding and conduct a baseline amount of rulemaking? 
• Or are these issues best decided between Congress and the Executive Branch without court intervention?

As these questions are decided, the industry will face years of regulatory and legal uncertainty, during which issues ranging from the propriety of foreclosures to the adequacy of your credit union’s responses to consumer questions about their outstanding loan payments remain in doubt. 

Have fun storming the castle.