CFPB Authority is seriously under Fire via Court Rulings

It looks like the Consumer Financial Protection Bureau (CFPB) is taking some lumps in recent court proceedings. The bureau recently demanded information and documentation from a well-known college accreditor, and those demands were outright denied by a federal judge in Washington D.C. The judge denied the CFPB’s requests on grounds that the organization does not have the statutory authority to make demands so far out of the realm of direct consumer finance. This setback comes hot on the heels of an even greater threat to the CFPB’s authority, with the D.C. Circuit Court of Appeals expressing doubts about the CFPB having the power to reinterpret regulations that had long ago been settled upon by the Dept. of Housing and Urban Development.

The court also hinted that it doubted whether or not the CFPB has the authority to bring enforcement actions against businesses without a statute of limitations. Additionally, the court seems to be wary of the single-director structure of the bureau. With the track record of the CFPB so far it really is no wonder that Richard Cordray and his group are getting quite a bit of pressure from the courts. It really comes down to Congress being able to come in and set things right with the CFPB.

The actions of the courts to rein in the authority of the CFPB may be comforting to folks who believe that this agency has far too much power and very little accountability. But the courts can only go so far, and things may get worse. By making a direct challenge to the authority of the CFPB, the Accrediting Council for Independent Colleges and Schools was able to put forth a successful argument that it should have been the Dept. of Education instead of the CFPB that has the authority to launch investigations against educational accreditors.

This ruling may bring a bit of clarity to a small part of the CFPB’s structure, but the court can only deal with any facts that get presented officially. This means that the CFPB having a largely unchecked jurisdiction in some industries does not predict the bureau’s jurisdiction over other types of industries. On the contrary, companies will have to stand by and potentially become targets of the CFPB, and then pray that they have the funds to fight the bureau in court to get clarity on which organization – if not the CFPB – should be regulating them.

In a similar manner, while it is true the D.C. Circuit does have the ability to rule that an independent director – one that can only be removed for cause – is actually not constitutional. The court, however, is not likely to be able to make changes to the CFPB’s structure. What the courts will likely do is to make the CFPB take the bare minimum actions in order to make their organization constitutional. A similar case took place with a case against the Public Accounting Oversight Board, and it could mean that the CFPB will simply have to make its director removable at the decision of the President of the United States.

No matter how bulletproof the CFPB might like to think it is, opponents of the organization have to be hopeful that all of the direct attacks on the bureau’s authority begin to wear it down a bit. Even the most powerful organizations can be brought to their knees if enough pressure is put on them by the right leaders and organizations. One thing’s for sure – the CFPB is definitely on the ropes right now, and it may turn out that one of their opponents is able to land a KO punch before too long.


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