The Structure of the CFPB Ruled Unconstitutional
The Consumer Financial Protection Bureau (CFPB) is unique among all of Washington’s agencies, departments and bureaus. Its commissioner is appointed for a five year term, a term longer than that of the President, and can be removed by the President only “for cause”. The bureau has no congressional oversight and has a virtually unlimited budget as it gets its funding from the Federal Reserve rather than by congressional appropriation. A United States Federal Appeals Court recently ruled that the CFPBʼs structure is unconstitutional. The court ruled that Dodd Frank created a structure for the CFPB that made the commissioner the most powerful person in Washington, second only to the President. By doing so, congress violated the federal system of checks and balances. All other government organizations have either a head that serves at the pleasure of the President or a governing body of five commissioners selected from both political parties.
“The CFPB is empowered to 'regulate the offering and provision of consumer financial products or services.’ Being able to define financial products, it can regulate almost everything touching finance, from mortgages to financial advisors to retirement plans and even car loans, although expressly forbidden to do so. Acting like a freewheeling little legislature, it concocts laws as it improvises standards. It is authorized to declare, with scant congressional guidance, certain business practices abusive, unfair, deceptive or involving discrimination. It does so by whatever criteria it pleases, and imposes penalties it deems appropriate”.
The outcome of the election will determine the future governance of the CFPB. If there is a Democrat controlled congress, the only change will probably be to make the commission serve at the pleasure of the President. On the other hand, a Republican congress will probably give control to a five person board and assert much more congressional control. Watching what will unfold will be interesting.
Wells Fargo: The Beat Goes On
A few weeks ago, I wrote an article about the Wells Fargo fiasco and the failure of the financial institution regulators to punish the folks at the top of the organizations who are causing the problems. That may have changed, but not because of the regulators. The president of Wells Fargo was publicly humiliated in a hearing before Congress and then resigned. Wells Fargo has purchased multiple full-page advertisements in the newspapers in almost all of the markets in which it operates, which must have cost a fortune. There is no telling what the bank’s loss will be from lost customers and its inability to attract new customers. Overall, this has to be a shot heard loudly throughout the financial services industry. My guess is that the executive suite in every major financial institution is taking a harder look than ever at its corporate governance and that perpetrators of financial misdeeds within those organizations hereafter will lose more than their annual bonus.
The first step in arguing for a more realistic, lenient regulatory structure is for financial institutions to clean up their own acts and thereby reduce the need for more comprehensive regulation.
Credit Unions: Your Time is Coming
Until recently the regulation of credit unions relative to compliance issues has been pretty lax. That pendulum is beginning to swing. The Navy Federal Credit Union, the largest credit union in the country with over $73 billion in assets, was recently fined by the CFPB $5.5 million and required to make $23 million in restitution to its customers for unfair and deceptive debt collection acts and practices. Managers of credit unions who have not made consumer compliance a priority need to take a hard look at their policies and practices and make sure that their operations will stand the scrutiny of more enhanced regulatory audits. The day is coming.