Trump's CHOICE on CFPB

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Jun 19 2017
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Trump's CHOICE on CFPB

Trump’s CHOICE on CFPB?

By: Tom Brannon / CEO, Compliance Umbrella


Many statutes and regulations have a sponsoring agency, one that is assigned primary rulemaking (and perhaps enforcement) responsibility and authority. Dodd-Frank bundled much of the rulemaking and enforcement authority and passed it solely (or primarily) to the CFPB. The controversy and short history of enforcement (since 2012) by the CFPB led to a stinging rebuke in an early Executive Order by the new administration (EO13772, Core Principles for Regulating the United States Financial System). In its Summary of Recommendations, under “Driving Economic Growth,” the CFPB was referred to as unaccountable, abusive, and unduly broad. The Bureau would be replaced by the pending CHOICE ACT (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs).

Much of the private sector (and this writer) agrees that the CFPB is an anomaly best done away with. Its power is exercised with impunity, no accountability, and it presents a draconian example of rulemaking and enforcement. Some of their leading cases lie between “horrific” and “hilarious,”

  • “You think $9 million is an incorrect penalty? We do, too. How about $109 million?”
  • “The Statute of Limitations may have run in your lower court case, but you appealed to our own Administrative system and there’s no such thing as a Statute of Limitations over here – we don’t have to recognize such a legal concept.”
  • “We don’t agree that the time spent on a case file in front-end staging, accounting tasks, case-management system entry, review and write-up by your paralegal or a junior associate can be considered as time spent by your law firm . . . unless all of this was actually done by a managing partner.”  

So, the CHOICE Act came out of committee, on its way down the track toward the Senate. We’ve been waiting to see what Trump would do to simplify regulatory compliance – will he abolish the CFPB? Well, CHOICE would replace the CFPB and there are several very interesting changes that would be signal flags for his new regulatory track. Here’s what caught the writer’s eye about the new CHOICE ACT agency – renamed CLEA, Consumer Law Enforcement Agency.

  • Much of the CHOICE Act also applies to other agencies, FDIC, FRS, OCC, NCUA (those in financial services).
  • It doesn’t change the single Director design (but does expand the ability to remove the Director by removing the “for cause” limitation).
  • CHOICE cancels CFPB supervisory authority, one of the biggest sticks in the CFPB arsenal.
  • CHOICE removes all CFPB authority over payday loans, vehicle title loans, other areas for auto dealers.
  • No CLEA restrictions on arbitration agreements in financial products or services.
  • All CLEA regs would be subject to OIRA review. The CLEA would have its own Inspector General.
  • All the agencies in CHOICE would be brought into these changes.
  • The current ability to try CFPB cases through administrative proceedings would be virtually done away with. Any penalty issuing from an administrative hearing would be terminated if so demanded by a defendant and the case moved to a civil suit through the courts.
  • Companies receiving a CID could file a petition with a federal district court for modification or to be set aside.
  • All CLEA proposed rules would require an impact analysis and follow-up monitoring. All administrative proceedings, civil lawsuits and consent orders must include a cost-benefit analysis and post-order monitoring.
  • Dispensing a dose of irony, the Act requires the CLEA Director to establish a procedure for the issuance
    of advisory opinions.
  • All civil money penalties may be paid only to victims, not to third parties, and must be deposited in the general fund if not paid out within 24 months.
  • Major rules cannot take effect until Congress enacts a joint resolution of approval. A nonmajor rule is subject to disapproval by a joint resolution.

Proposed rules/regulations may be deemed to be “major” due to significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based businesses to compete with foreign-based businesses in domestic and export markets. Such major rules must, prior to implementation, be preceded by a Federal Register publishing of a list of information on which the rule is based, including data, scientific and economic studies, and cost-benefit analysis and submitted by report to Congress.

The Act is written in an ombudsman frame-of-mind but the writers did choose to side with business over consumers in several instances. They chose, in overriding the Second Circuit, to codify the “valid when made” rule - “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”

The CLEA, Fed, FDIC, OCC, NCUA, SEC, FHFA, and Commodity Futures Trading Commission (federal financial agencies) would be required to include specified information in notices of proposed (ANPR) and final rulemaking for proposed and final regulations constituting a “significant regulatory action,” including an assessment of a regulation’s anticipated costs and benefits and an identification and assessment of available alternatives.

One of this writer’s favorite sections is the CLEA cancellation of the application of the deference principle (aka Chevron Deference) where courts are bound to side with an agency by supporting the agency’s claim that courts should assume that its position coincides with its original intent in a rulemaking. This principle frequently leads to violator’s claims of court bias and unjust or inequitable claims during enforcement actions.  

If you’re wondering about compliance, the laws you’re complying with have mostly been around for some time. Compliance isn’t going anywhere, although Dodd-Frank’s demise would be big news. Trends and possibilities that seem most important are:

a)      The desire to move the huge costs and risks in compliance off the balance sheet, somehow;

b)      Technology as the primary tool to do that (watch for AI, blockchain, data security solutions);

c)      The rise of new chairs in the C-level suite (newest is CECO, Chief Ethics and Compliance Officer);

d)      The expansion of the FCPA (Foreign Corrupt Practices Act) horizontally across many businesses in the U.S., UK, Europe and Asia-Pacific;

e)      The growth of vendor risk (somewhat due to FCPA) and cybersecurity as the new gorillas in the room;


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