Removing Barriers Blog

Where Does PHH and the Election Leave CFPB?
Posted November 11, 2016 by CUNA Advocacy

Tuesday’s election results are likely to bring many new opportunities for the credit union industry, but one key question has stood out. Where does President-elect Donald Trump’s victory leave the CFPB – particularly after the U.S. Court of Appeals decision in the PHH case

As CUNA has previously reported, the court in this decision found that the construct of the CFPB is unconstitutional. The court wrote, “As an independent agency with just a single Director, the CFPB represents a sharp break from historical practice, lacks the critical internal check on arbitrary decision-making, and poses a far greater threat to individual liberty than does a multi-member independent agency.” It further added that, “All of that raises grave constitutional doubts about the CFPB’s single-Director structure.” 

A key part of this ruling also found that the President, “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”  

Donald Trump has expressed concerns about the effects of the Dodd-Frank Act and has vowed to roll it back. The Trump website recently was updated to state, “Following the financial crisis, Congress enacted the Dodd-Frank Act, a sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies…The big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed ‘too big to fail’.” 

Accordingly, it seems likely that if the PHH decision takes effect, President-elect Trump could use this ruling to remove the CFPB Director.  

However, it is important to note that it is not yet in effect and is likely to be challenged by the CFPB through an en banc review or an appeal directly to the Supreme Court. Currently, the President can only remove the CFPB Director “for cause”. And, the exact timing of any appeals to the decision, whether a stay will be granted, and the exact timeline of the ruling taking effect are not set in stone at this time. So it is far from certain that changes can be made to the CFPB shortly after the January Presidential Inauguration.  

Nevertheless, it also seems probable that since Trump will be filling open Supreme Court seats, key staff of the CFPB may be leaving in light of the uncertainty, and since such a situation is unprecedented leaving a lot of discretion to the new President in how he chooses to handle it – the days of Director Cordray could be numbered. On the other hand, he could also potentially serve his full-term until 2018. 

Furthermore, Congress has already sought to provide some clarity on the question of CFPB leadership authority. It has introduced legislation that would change the construct of the CFPB from a single director to a five-person board and place the agency under the appropriations process. This legislation will almost certainly be reintroduced in the next Congress and has a much greater chance of passage with the Republican make-up of all chambers of government. Notably, however such changes to the CFPB construct would at the very least also have to garner support of some Senate Democrats to move forward out of the Senate. 

It’s a new world for the financial services industry after Tuesday, and  CUNA is closely following the progress of the PHH case and will be advocating for changes that best serve credit unions and their members.