The Future of the CFPB and its Rulemaking Authority in 2017

By Steven J. Kubik

Last Friday, you may have seen some variation of the following headlines: “Trump to Take Steps Rolling Back Financial Regulations” or “Trump Moves to Undo Dodd-Frank Law.” Whether you are excited or terrified by these headlines, you likely have questions regarding the changes that this new year and new Presidential administration will bring affecting the mortgage industry. This article won’t pretend to have all the answers, but will attempt address a few with respect to the Consumer Financial Protection Bureau (the “CFPB”) and its rulemaking authority.

Will President Trump attempt to eliminate the CFPB and Dodd-Frank altogether?

Doubtful. To date, this type of complete dissolution does not appear to be an official agenda item for either President Trump or Republican leadership. The headlines referenced above are largely due to Trump’s executive order entitled “Presidential Executive Order on Core Principles for Regulating the United States Financial System.”[1] The text of this order does not specifically mention the mortgage industry or Dodd-Frank. Instead, the order grants authority to the Treasury Department to conduct a sweeping review of existing laws and regulations to ensure they align with the administration’s goals.

That said, the slew of recent executive orders indicates that President Trump is determined to fulfill campaign promises. With respect to Dodd-Frank, the President has previously called it a “disaster” and plans to “do a big number on it.” As such, change is likely coming for the mortgage industry, but the extent of that change remains a mystery. To be sure, any complete disbandment of the CFPB or Dodd-Frank would require Congress to enact legislation and cannot be accomplished by executive order alone.

What will happen to the CFPB’s Director and the CFPB’s Structure?

The answer to this question largely depends on the result of the PHH Corp. v. Consumer Financial Protection Bureau case, which has created a buzz in the mortgage industry since the D.C. Circuit’s opinion last October. [2]  In case you missed, a summary of the opinion can be found in two parts, here and here.

In short, the case involves fines assessed by the CFPB against PHH for RESPA violations. The opinion not only addresses the legitimacy of the fines assessed, but also holds that the CFPB’s single-director structure is unconstitutional. If upheld, the President will be able to remove the Director without cause.

The result of PHH, however, is stayed pending a final outcome in the case. In November 2016, the CFPB petitioned the D.C. Ciruit for en banc[3] review of the decision. The Court has not yet ruled on the CFPB’s petition for en banc review, and it is rumored that even if denied, the CFPB will petition the Supreme Court for review.

It is possible that the courts will move slower than the new Republican-controlled Congress. Congress may choose to amend Dodd-Frank and change the structure of the CFPB before the courts have a final word. Such legislation would make the CFPB’s appeal regarding its structure moot.

At least for now, Richard Cordray will stay in his position as sole-director of the CFPB. His term is set to expire July 2018.

If Congress transfers rulemaking authority away from the CFPB, who will administer, abandon, or change the final rules?

The Dodd-Frank Act provides a list of enumerated consumer laws for which the CFPB has rulemaking authority. Dodd-Frank transferred some of the CFPB’s current rulemaking authority away from other federal agencies. For example, the Fed previously held rulemaking authority for the Truth in Lending Act (“TILA”), and the U.S. Department of Housing and Urban Development (“HUD”) previously had rulemaking authority for the Real Estate Settlement Procedures Act (“RESPA”).

If Congress amends Dodd-Frank to remove one or more of these consumer laws from the CFPB’s rulemaking authority, the rulemaking authority would revert to its previous owner, unless Congress specifies another agency. The new (or former) owner would then have rulemaking authority going forward.

Some consumer laws had no rulemaking authority until it was granted to the CFPB under Dodd-Frank, such as the Fair Debt Collection Practices Act (“FDCPA”). For now, the CFPB has not yet issued any rules under the FDCPA. As such, there is currently no risk that regulations issued by the CFPB will no longer have an agency to administer them.

If Congress transfers rulemaking authority away from the CFPB, what will happen to pending rules?

There are several CFPB rules which have not yet taken effect, including the proposed TRID Amendments published on August 15, 2016.[4] When the CFPB took over its rulemaking authority, it did not seek to finalize pending rules from a previous agency owner without first issuing its own proposal. Indeed, any new (or former) owner of rulemaking authority will likely want to tailor any pending rules to its own preferences. It is unclear whether a new owner of rulemaking authority may simply finalize a rule as proposed by the CFPB without issuing a new federal Register notice and opening a new period for public comment. As a practical matter, if rulemaking authority is transferred away from the CFPB it is unlikely that any pending rules will be finalized—at least in their present form.

[1] See Presidential Executive Order on Core Principles for Regulating the United States Financial System (February 3, 2016), available at https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states (identifying the Administration’s “Core Principles” with respect to financial regulation and directing the Secretary of the Treasury to consult with the heads of certain agencies and report to the President within 120 days regarding which laws, treaties, regulations, guidance, reporting and recordkeeping requirements that inhibit these Core Principles).

[2] PHH Corp. v. Consumer Financial Protection Bureau, No. 15-1177 (D.C. Cir. Oct. 11, 2016), available at https://www.cadc.uscourts.gov/internet/opinions.nsf/AAC6BFFC4C42614C852580490053C38B/$file/15-1177-1640101.pdf  (last visited Oct. 18, 2016).

[3] The D.C. Circuit’s opinion in PHH was decided by three of the Court’s judges. By seeking an en banc review, the CFPB is asking for the entire Court (all D.C. Circuit judges) to rehear the case.

[4] See Amendments to Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z) (August 15, 2016), 81 FR 54318, available at https://www.federalregister.gov/documents/2016/08/15/2016-18426/amendments-to-federal-mortgage-disclosure-requirements-under-the-truth-in-lending-act-regulation-z