Consumer Law & Policy Blog

Rutgers Arbitration Symposium This Friday

by Jeff Sovern

More here.  One panel is on the CFPB proposed arbitration rule (I'm on that one) and consumer arbitration; another is on FAA preemption and nursing home arbitration; a third is on ADR in practice.

Financial Regulation Scholars Amicus Brief in PHH Case

Here.  Deepak Gupta is counsel. Here's the Introduction and Summary of the Argument:

The Constitution requires public accountability for government agencies but does not prescribe how it must be achieved. It can be achieved in a variety of ways through agency design, and indeed, there is tremendous variation in agency structure. Public accountability can also be fostered through presidential action, congressional oversight, and judicial review.

The panel’s decision, however, would require either at-will presidential removal of the agency’s head or a multi-member commission structure. This wooden one-or-the-other requirement has no logical connection to the constitutional mandate of public accountability, which is better analyzed holistically, based on the entirety of an agency’s features.

Viewed holistically, the CFPB is a highly accountable agency. It was designed specifically in response to a lack of accountability by other financial agencies, even those that would formally satisfy the panel’s new either-or requirement. The CFPB is designed to address a specific type of accountability problem—regulatory capture—and comes with a battery of accountability mechanisms that have proven successful. The CFPB’s structure is a permissible example of how Congress—learning from its experiences of what works in regulatory agencies—can design a system that enhances rather than diminishes public accountability.

 

The Hill Reports Bill to Weaken CFPB Could be Marked Up in April While Politico Makes it Seem As it Might Not Move

Here is The Hill's Report. Excerpt:

Republicans on the House Financial Services Committee are eyeing April markups for Dodd-Frank legislation, meaning Democrats have just about a month to settle on a strategy to defend the CFPB.

Some Democrats think working with Republicans on some changes to the CFPB could be sound policy.

Several House Financial Services Committee Democrats say backing a coalition, for example, could protect the agency from withering under a Trump appointee.

“I’ve been warning my party for a long time that at some point you’re going to have a Republican president,” said Rep. Brad Sherman (D-Calif.). “I prefer a bipartisan commission.”

And here is Politico's:

What did the health care meltdown mean for Republicans’ hopes of dismantling President Barack Obama’s other legislative legacy, Dodd-Frank?

It certainly didn't help. While tax reform appears to be moving to the frontburner, sources on the Hill and downtown saw no similar opening for “doing a big number” on Democrats’ landmark Wall Street legislation, as President Donald Trump once promised.

If anything, sources said Friday's episode underscored the risk that Republicans haven’t fully identified their internal political fault lines, including when it comes to undoing Dodd-Frank, and that Democrats will be emboldened to fight back.

So don't expect House Financial Services Chairman Jeb Hensarling's Dodd-Frank alternative, known as the Financial CHOICE Act, to hit the House floor in the near future, unless Trump or his team — which includes a small army of Goldman Sachs alums — take a strong interest. Treasury Secretary Steven Mnuchin is conducting a wide-ranging review of financial regulations for a report that’s not due until June.

“If Dodd-Frank reform is a big priority for the White House and Steven Mnuchin, you could see it potentially move up the sequence of events. But, short of that, I don’t really know if it changes that much,” an aide to a senior House Republican said. “We’d have to get a lot of people up to speed [on the Financial CHOICE Act] who aren't really up to speed on it.”

 

A Question I Would Like to Ask PHH's Lawyer, Ted Olson

by Jeff Sovern

We've blogged several times about the House Financial Service Subcommittee hearing on the constitutionality of the CFPB, at which PHH's lawyer Ted Olson, among others, testified.  Now that I have listened to the hearing, I have a few reactions. Personally, I found the questioning by the Democratic members disappointing. For the most part, they did not engage on the constitutional issues.  Instead, they largely focused on the good work of the CFPB, and argued that Mr. Olson, as counsel for a party in the PHH case, had a conflict of interest in testifying on the matter before Congress.  I agree that the representatives should have spent some time pointing out that the CFPB does important work because members of the public who might have been listening might not be aware of that work.  Indeed, one of the witnesses seemed not to know of at least some of it.  But I don't share the view that Mr. Olson's testifying at the hearing was a problem. His representation was disclosed.  Not surprisingly, the views that he expressed (which he said were his own and I believe him) were consistent with his client's views, but so what?  That doesn't mean they aren't worth hearing. I did not find them persuasive, but I wanted to hear what they were and I don't see anything improper about his expressing them at the hearing.  Mr. Olson was an effective advocate for the argument that the Bureau is unconstitutional and surely Congress should hear from effective advocates.

I was disappointed by the failure of the Democrats to push the witnesses more on the constitutional questions. By failing to do so, they might have created the impression that they are unable to defend the Bureau as a constitutional matter, and that is simply wrong. Yes, the Democrats had one witness who made the case that the Bureau is constitutional, Brianne Gorod, Chief Counsel, Constitution Accountability Center, but in my view, the Democrats could have questioned the other witnesses more forcefully on their constitutional arguments. In particular, I wish someone had asked Mr. Olson if the Bureau would pass constitutional muster if it consisted of a commission.  If he said no, then I would follow up by asking why Humphrey's Exec. doesn't resolve that question.  If he said yes, then I would ask Mr. Olson also to explain why a single director structure doesn't enable the president to take care that the laws shall be executed but a commission does, as Humphrey's ruled.  Maybe we will see how he answers those questions during the D.C. Circuit rehearing.

And just to be clear, I wouldn't mind discussing some other matters with Mr. Olson that have nothing to do with the PHH case. He has led an extraordinary life.

More on the House Hearing on the CFPB's Constitutionality

Brian posted yesterday about the House hearing. For those who don't want to listen to the recording, you can find reports in the St. Louis Post-Dispatch (Rep. Ann Wagner takes aim at consumer protection chief), Housing Wire (Tensions escalate at House hearing on constitutionality of the CFPB), Money (This Lawmaker Just Gave the Perfect Defense of a Consumer Watchdog the GOP Is Trying to Kill), Morning Consult (CFPB Opponents Suggest Trump Could Use DOJ to Justify Firing Cordray), and CFPB Monitor (Process vs. Outcomes Debated at Hearing on Constitutionality of CFPB Structure). As the headlines suggest, the reports offer quite a range of perspectives on the heaing. Here's an excerpt from the Housing Wire story:

Well, this is awkward.

Four witnesses on the "constitutionality" of the Consumer Financial Protection Bureau sat before a House subcommittee on Tuesday morning, lending their expert knowledge to help sort through the current state of confusion around the bureau. 

* * *

But instead of providing their expertise on the CFPB and its constitutionality, the four witnesses were tossed around between House Republicans who profusely thanked them for coming and House Democrats who condemned the hearing entirely.  

Book Published on the CFPB From Birth to 2015

The book is Meltdown: The Financial Crisis, Consumer Protection, and the Road Forward (Praeger 2017), by research economist Larry Kirsch and sociologist Greg Squires (George Washington University Sociology Department). Here's an abstract:

Meltdown is the first book length account of the CFPB from its inception through 2015. With a foreword based on an interview with Elizabeth Warren and an afterword contributed by Michael Barr, Meltdown could hardly be a more timely read for all the doers and viewers immersed in the current political/legal threats to the Bureau. The book is written for both subject matter specialists (academics and practitioners) and general public affairs readers; its brisk narrative style plus detailed endnotes make it accessible and very useful for scholarship.

Meltdown is based on extensive in-depth interviews with more than 50 current CFPB staffers (at various levels and places throughout the agency, including Director Cordray); Bureau alumni including some of the pioneers; and a host of key stakeholders from industry, the consumer and fair-lending advocacy communities, the press, academia, and the Hill.

Among its major contributions, Meltdown profiles some of the key early players inside and out of the Bureau (including Director Cordray, Raj Date, Michael Barr, and Mike Calhoun) and offers diverse perspectives relating to the origins and early days of the CFPB from the stand-up (2010) through 2015. It features detailed case studies of the CFPB’s auto lending and mortgage origination initiatives as vehicles for probing and making preliminary observations about some of the fundamental conflicts the Bureau was called on to balance and resolve. Among them were striking the right balance between consumer protection and the risk of reduced credit access, finding ways of adapting to changing market conditions, bringing about maximum voluntary compliance among regulated lenders without sacrificing the agency’s firm objectives, making subtle judgments about how hard to push while standing right on the nebulous border of regulatory overreach, and finding ways to get industry to invest in structural changes in their consumer lending practices (to promote safety and fairness) when the benefits—from the industry perspective—seem tenuous though the costs are in plain sight.

 

Author of "The Imbecilic Executive" to Testify Before Congress on CFPB's Constitutionality

by Jeff Sovern

I originally had a different title for this post in mind, but I didn't have the discipline to resist the one above.  Not that anyone should have any doubts, but the CFPB director is not the executive the article refers to.  Anyway, the House Financial Services Committee is having a hearing titled “The Bureau of Consumer Financial Protection’s Unconstitutional Design” (nice that they have an open mind on the issue) on Tuesday. More here.   The witness list consists of:

• The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP (who represents PHH)
• Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law (former clerk for Justice Thomas and author of The Imbecilic Executive, published in the Virginia Law Review)
• Mr. Adam White, Research Fellow, Hoover Institution
• Ms. Brianne Gorod, Chief Counsel, Constitution Accountability Center (whose essay we linked to here)

                     

Why the DOJ Brief in PHH, Arguing that the CFPB is Unconstitutionally Structured, is Wrong

by Jeff Sovern

The Department of Justice has now filed its brief in PHH, arguing that the CFPB as created by the Dodd-Frank Act was unconstitutional because the statute did not give the president the power to fire the Bureau's director without cause, and that the appropriate remedy is the one selected by the original panel: permit the president to fire the director at will.  The Government recognizes that the leading precedent that allows Congress to establish independent agencies whose leaders cannot be fired by the president, is Humphrey's Exec. v. United States, which held that the president could not fire a Federal Trade Commission commissioner without cause. But DOJ argues that Humphrey's is distinguishable because the FTC has five commissioners, and the CFPB has a single director.  DOJ so states because multimember organizations are deliberative; their members serve staggered terms, yielding continuity; and a president would be able to appoint some members of such a commission within a single term, while a president with a four-year term might not be able to appoint a CFPB director (who serves for five years) during that term.

In my view, while reasonable people could differ as to whether a particular agency is better created as a commission or with a single director, DOJ's reasons do not rise to the level of affecting the constitutionality of such bodies.  The relevant constitutional provisions in this area state that the president wields executive power and that the president shall take care that the law is faithfully executed.  DOJ's arguments don't implicate those provisions. Yes, commissioners are likely to deliberate over their actions, but what does that have to do with the president's authority?  Yes, commission members may serve staggered terms, but again, so what?  How does that implicate the president's duty to take care that the law is faithfully executed?   Yes, a president might not be able to appoint a director, but a president might also not be able to appoint a majority of a commission's members, meaning that the commission can just as easily flout the president as a director. 

I don't want to reprint the entire discussion from Humphrey's on this issue, because that would make the post too long, but I have linked to Humphrey's above in case you want to read it in its entirely.  I'm going to paste in an excerpt from Humphrey's below. As you read it, think about two things: first, does any of the Court's reasoning depend on the fact that the FTC was a commission, and second, if you substitute "Consumer Financial Protection Bureau" for "Federal Trade Commission" and the CFPB's statutory powers instead of the FTC's, would it describe the CFPB accurately:

The Federal Trade Commission is an administrative body created by Congress to carry into effect legislative policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an arm or an eye of the executive. Its duties are performed without executive leave and, in the contemplation of the statute, must be free from executive control. In administering the provisions of the statute in respect of "unfair methods of competition" — that is to say in filling in and administering the details embodied by that general standard — the commission acts in part quasi-legislatively and in part quasi-judicially. In making investigations and reports thereon for the information of Congress under § 6, in aid of the legislative power, it acts as a legislative agency. Under § 7, which authorizes the commission to act as a master in chancery under rules prescribed by the court, it acts as an agency of the judiciary. To the extent that it exercises any executive function — as distinguished from executive power in the constitutional sense — it does so in the discharge and effectuation of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the government.

* * *

We think it plain under the Constitution that illimitable power of removal is not possessed by the President in respect of officers of the character of those just named. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control cannot well be doubted; and that authority includes, as an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that one who holds his office only during the pleasure of another, cannot be depended upon to maintain an attitude of independence against the latter's will.

The Department of Justice might not like it, but the CFPB is constitutional.

 

Bloomberg's Chris Bruce: U.S. Set to Signal Stance in Landmark CFPB Powers Case

Here. Excerpt:

A government brief in opposition to the CFPB [in the PHH case] likely would have significant weight at the D.C. Circuit, and would boost the odds that the Justice Department might block CFPB efforts to push the case to the U.S. Supreme Court later on.

* * *

“In the longer term, an argument that the president can remove the CFPB director from office without cause, as the PHH panel decision held, would suggest that the president wishes either to fire Director Cordray without offering a cause, or at least to preserve his ability to do so,” Sovern told Bloomberg BNA. “Firing a director who has returned nearly $12 billion to nearly 30 million consumers would be difficult to square with the president’s pledge to aid ordinary Americans.”

NY Daily News: CFPB Budget Equals 2% of JP Morgan Chase 2013 Litigation Expense Reserves

So says Lisa Servon in her op-ed, Save the federal consumer watchdog: The CFPB protects us all.