Consumer Law & Policy Blog

What does Judge Preska's decision striking down the CFPB mean for consumers?

by Jeff Sovern

Allison blogged earlier about Judge Preska's decision striking down the CFPB as unconstitutional and I've been wondering what it means for consumers. I hope some of our readers will offer their own thoughts in the comments, because I'm still trying to figure this out. As a formal matter, in terms of the binding aspects of res judicata and stare decisis, I don't think it means much.  While Judge Preska would surely dismiss any claims brought by the CFPB that land in her court, her decision does not bind any other district court judge, and so the Bureau could still bring cases before other judges, including other judges in the Southern District of New York (if I recall correctly, the SDNY uses random assignment, so the odds are any cases the CFPB brings would go to another judge). I believe non-mutual issue preclusion doesn't bind the federal government and in any event, the D.C. Circuit disagreed with Judge Preska's decision in the PHH case.

But that's not the end of. it. The decision could lend support to courts considering invalidating the Bureau (other court challenges are pending) and inspire other financial services companies to challenge Bureau actions.  Some have suggested that the decision increases the likelihood that the Supreme Court will take the issue; I'm not sure because thus far only one circuit court has weighed in, but if the Court wants to hear the case enough, it doesn't need to wait for a circuit split. Another question is whether the Bureau will appeal. Judging by the position the Trump administration took in the PHH case, it might not.

So what does all this mean for consumers? Judge Preska went further than the PHH panel decision and held that the defects she saw in the Bureau's structure could not be cured simply by allowing the president to fire the director without cause.  If the Supreme Court adopts a similar position, I'm not sure what would happen.  Probably the Court would allow Congress some time to amend the statute to address the problem before allowing a decision to take effect. But if not, or if Congress failed to act before any court-imposed deadline passed, I'm not sure what would happen.  Maybe responsibility for the Bureau's inherited regulations would revert to the agencies that had jurisdiction over them before the Dodd-Frank Act (i.e., the agencies that Congress decided didn't protect consumers adequately in the run-up to the Great Recession), but what would happen to the regulations that the Bureau created? Would the Bureau's amendments to the inherited regulations be invalid?  Who would have enforcement power?  It could be chaos.  

"Education Department ordered to stop collecting debts from defrauded Corinthian College students"

The Hill reports that a judge has ordered the Department of Education to stop collecting debts from all students defrauded by the for-profit Corinthian College, which shut down in 2015. "The court ruled in May that the Department of Education had violated privacy laws by using Social Security Administration information to help it determine how much relief defrauded Corinthian students should get based on their earning capacity. The department was then ordered to stop collecting debts from the four students who represent a class in a lawsuit challenging the debt relief scheme."

The full article is here.

NY judge holds CFPB structure is unconstitutional!

In a case brought by the Consumer Financial Protection Bureau and the State of New York, a judge in the Southern District of New York held today that the structure of the CFPB is unconstitutional because it is an independent agency that has substantial executive power and a single director. Judge Loretta Perska further held that the provision of the statute that she held unconstitutional cannot be severed from the rest of the section of the Dodd-Frank Act that established the CFPB, and she therefore held the entire section to be invalid. The judge then said that the CFPB lacks authority to bring an enforcement action, and she dismissed its claims.

Judge Preska was nominated to the district court by President George H.W. Bush and has served since 1992.

The decision in CFPB v. RD Legal Funding is available here.

Report that Kraninger "likely was deeply involved" in the Zero-Tolerance Immigration Policy

by Jeff Sovern

Kate Berry in the American Banker is reporting that the nominee to run the CFPB, Kathy Kraninger "likely was deeply involved in President Trump's "zero-tolerance" immigration policy, according to former officials with the Office of Management and Budget and the Department of Homeland Security."

Meanwhile, a WSJ editorial argues that Kraninger "has more than enough of the experience that matters at the CFPB—in how bureaucracies work."  Payday lenders have also endorsed Kraninger. So neither experience separating children from parents nor lack of experience with consumer law are seen as disqualifying someone from running the CFPB and dealing with predatory lenders?

Cell-service companies suspend selling of customer location data following misuse by prison officials

Verizon, AT&T and Sprint will no longer share customers' location information with several third-party companies who failed to handle the data appropriately, the Washington Post reports. The move follows an investigation by Sen. Ron Wyden (D-Ore.) into the commercial relationships between Verizon; a pair of obscure data vendors, LocationSmart and Zumigo; and those companies' corporate customers.

"Wyden's investigation found that one of Verizon's indirect corporate customers, a prison phone company called Securus, had used Verizon's customer location data in a system that effectively let correctional officers spy on millions of Americans. In a letter to the Federal Communications Commission last month highlighting the probe, Wyden said prison officials using Securus's surveillance system could obtain real-time location data on Americans with little more than a 'pinky promise' of propriety, leading to 'activities wholly unrelated' to prison management."

The full article is here.

Politics and Kraninger's Nomination

Is Kraninger's nomination really a ploy to extend Mulvaney's leadership of the Bureau? That's an issue discussed in Roll Call's article, Despite New CFPB Nominee, Mulvaney Could Be Around a Long Time.  Excerpt:

“I think there’s a strategy here that is steeped in the lore of federal appointments,” said Morrison & Foerster attorney Oliver Ireland.

“It’s a little unusual to see a new name come in at this stage of the game,” Ireland said of the little-known Kraninger. “It could be that this is a play to keep Mulvaney in there longer.”

Ed Groshans, managing director for the financial securities group at Height Capital Markets, sees Kraninger’s nomination as practically an announcement that Mulvaney could be at the bureau not just through the end of this year, but through the end of 2019.

The nomination of the unknown Kraninger appears to be a ploy, he said. 

Meanwhile, American Banker's Kate Berry, in an article titled Dems suggest CFPB nominee had role in ‘zero-tolerance’ border policy, reports:

Opposition to the White House pick to run Consumer Financial Protection Bureau escalated Tuesday when Democratic senators suggested the nominee may have been involved in the policy of separating children from their parents at the U.S. border.

* * *  

"Kathy Kraninger helps oversee the agencies that are ripping kids from their parents. Now @realDonaldTrump wants her to run the @CFPB. I will put a hold on her nomination – & fight it at every step – until she turns over all documents about her role in this," Warren said in the tweet.

 

Bankruptcy judges looking for ways to help reduce student debt

The Wall Street Journal reports that, although bankruptcy judges have in the past refused to consider reducing student loans, some judges are now looking for ways to help people struggling to repay their debt.

"Outright cancellations remain rare, but judges said they have other tools at their disposal, including encouraging lawyers to represent borrowers for nothing. The lawsuits can cost $3,000 to $10,000 and take years.

"Other judges are embracing debt-relief techniques that don’t fully erase student loans but make repayment more affordable by, for instance, canceling future related tax bills."

The full article is here. (Subscription required.)

Low credit scores a costly to home buyers

This article by Michele Lerner discusses the significant impact of a low credit score on the cost of credit (with a focus on home-mortgage credit). So, consumers should remove harmful (and false) information from their credit reports, which are shockingly inaccurate. The FTC says this about how consumers can dispute credit-report errors. 

Inside the Selection of Kathy Kraninger

by Jeff Sovern

We received the following transcript from Canadian intelligence services of White House deliberations between two unidentified people:

A: Who should we pick to run the BCFP?

B: Can't Mick just stay on?

A: Not past this week.

B: Too bad. He's done a great job. Wait until you see the bank campaign contributions! Could we nominate him for the permanent job?

A: It would be a confirmation battle, and if we lose two senators, we lose the battle.

B: Too bad we can't clone him.

A: What about someone he works with, someone we know will hew to his line?

B: Great idea!  Let's pick a stealth candidate, someone we know but no one else does. Someone without a record in consumer stuff. Then no one can use any past statements against us.  We tell the candidate to say as little as possible, try to sneak through confirmation.

A: Then people might vote no because the candidate doesn't have any experience or know anything about consumer law. This stuff isn't easy, you know. 

B: Ignorance didn't hurt Devos.

A: Yeah, but we've lost a seat since then, and the vice president had to break a tie on that one. If that vote were held today, we would lose.

B: Well, what happens if we lose?

A: Then we get another cycle. Mick gets another seven months and we nominate someone else.  And that person gets a five-year term on confirmation, so it gives us control of the Bureau for even longer

B: So either we get the Mick clone or Mick? Sounds perfect! We win either way.

A: I love this country!

 

White House says it will nominate Kraninger to head CFPB

by Jeff Sovern

Various outlets are reporting that it will be Kraninger.  At least one conservative objects to the appointment.  Here is an except from the WSJ report:

“The nominee is unqualified,” said J.W. Verret, a law professor at George Mason University and former chief economist for Rep. Jeb Hensarling, (R., Texas), head of the House Financial Services Committee.

And Verret was quoted in a Politico report as follows:

“It would be exactly like the Bush administration’s try at Harriet Miers for the Supreme Court and would end the same way,” J.W. Verret . . .  said in an emailed statement about Kraninger.

Not surprisingly, industry officials are giving more favorable quotes. As for Kraininger's experience, the WSJ had more:

At OMB, where she serves as an associate director under Mr. Mulvaney, Ms. Kraninger helps draft the budgets of several cabinet departments, as well as a number of government agencies with combined budgets of about $250 billion—including the CFPB.

“She’s been very involved with those agencies,” a White House official said, adding that she was an “integral part” of the team that helped develop the administration’s agenda on financial matters and other policy issues related to the government organizations in her portfolio.

Ms. Kraninger's absence of a record in consumer financial services is both a positive and a negative from the point of view of confirmation. On the positive side, it means there won't be any prior statements to attack, as would have been the case if the president were to nominate, say, Todd Zywicki. On the other hand, she can be, and obviously already is, being attacked for not having relevant knowledge.

My take: Consumer financial law is an exceedingly complicated field. As someone who has studied, taught, and written about consumer law for more than thirty years, I am constantly amazed at how much more I have to learn about it.  The idea that someone who is new to the subject is taking over what Republicans often call the most powerful position in government, after the president, is frightening. On this one, Verret is right. The helm of the CFPB is no place for on-the-job training.