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Feb. 2, 2018

Judges back independence, constitutionality of CFPB

A panel of federal appeals court judges this week ruled that the structure of CFPB is constitutional, and that the consumer protection bureau is an "independent" agency, overturning an earlier decision in the U.S. Court of Appeals for the D.C. Circuit. The decision could set the stage for an appeal to the Supreme Court.

“Because we see no constitutional defect in Congress’s choice to bestow on the CFPB Director protection against removal except for ‘inefficiency, neglect of duty, or malfeasance in office’, we sustain it,” the panel of judges wrote in their decision, referring to the agency’s structure.

The 7-3 decision issued by the 10 members of the D.C. Circuit appeals court, sitting “en banc” (meaning all of the appeals judges in the circuit), found that the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) shielding the director of the CFPB from removal without cause is “consistent with Article II” of the Constitution.

“The Supreme Court 80 years ago sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB,” stated the court’s decision, written by Judge Nina Pillard for the majority. “In doing so, the Court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the President. The Court has since reaffirmed and built on that precedent, and Congress has embraced and relied on it in designing independent agencies.”

The panel was reviewing an Oct. 11, 2016 decision (CFPB v. PHH) by a three-judge panel of the appeals court that overturned a lower court decision. The appeals court panel ruled that the single-director structure of the CFPB as devised is unconstitutional, representing too great a concentration of executive power – and that the director, consequently, must serve at the will of the president (and not be subject for removal only “for cause”).

The court also in 2016 ruled that CFPB, going forward, could no longer be considered an independent agency.

In February 2017, the CFPB was granted the “en banc’ review by the appeals court. Since then, the director of the agency (Richard Cordray, appointed by President Barack Obama), has stepped down. President Donald Trump in November tapped Mick Mulvaney as acting director.

In a statement, House Financial Services Committee Chairman Jeb Hensarling (R-Texas), a frequent critic of the CFPB under the Obama administration, said he was disappointed by the decision and that hoped the Supreme Court will review the ruling in short order. However, the firm that brought the original case (PHH) gave no indication it intended to appeal to the high court. In a statement, the company focused solely on its original claim in the case regarding fees for mortgage reinsurance. Since the decision leaves intact a lower court decision which removed a multi-million dollar fine assessed against the company by the bureau, it is less likely that it will, according to some reports.

'En banc' decision in appeal of PHH v. CFPB


Meanwhile, reports began surfacing Thursday that the bureau had stripped enforcement powers away from its Office of Fair Lending and Equal Opportunity, which had focused on imposing penalties on lenders for alleged discriminatory practices. Instead, according to reports about internal emails sent from Acting Director Mick Mulvaney to agency staff, the office will move into the office of the director; staffers will be focused on “advocacy, coordination and education,” and no longer have responsibility for enforcement and day-to-day oversight of companies. According to the reports, those responsibilities will remain with the division of supervision, enforcement and fair lending, which conducts oversight and enforcement actions in a wide range of cases of financial wrongdoing.


“Administrative adjudications” are the subject of the second “request for information” (RFI) issued by the CFPB in its own search of “evidence” of whether or not it is accomplishing its mission. The agency said Wednesday that it issued the second of what it has called a series of RFIs to “better understand the benefits and impacts of its (the agency’s) use of administrative adjudications, and how its existing process may be improved.” The RFI was issued with a 60-day comment period.

The RFI refers to the agency’s rules regarding the general conduct of administrative adjudication proceedings, which the law setting up the agency (Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) instructed the bureau to do. The rules cover the initiation of such proceedings and prehearing rules, hearings, decisions and appeals, and temporary cease-and-desist proceedings.

According to CFPB, to date, there have been eight administrative adjudication proceedings under the rules that were not immediately resolved by the issuance of a consent order. Six of the proceedings, the agency said, were settled during the course of the adjudication, one proceeding is pending, and one proceeding has resulted in a final decision.

This week was the third in a row that the agency addressed the RFIs. Two weeks ago (Jan .17), Acting Director Mulvaney announced the agency would issue the series of RFIs to unearth “evidence” that the agency is fulfilling its “proper and appropriate functions to best protect consumers.” Last week (Jan. 24), the agency issued the first of the RFIs (on civil investigative demands (CIDs)), for a 60-day comment period.

The RFI issued Wednesday stated that the bureau is seeking information to “improve its administrative adjudication processes, including the Rules, while continuing to achieve the Bureau’s statutory purposes and objectives.”

CFPB Issues Request For Information On Administrative Adjudications


The need for sustained attention to cybersecurity risks were emphasized by Treasury Secretary Steven Mnuchin in testimony before the Senate Banking Committee this week, outlining key aspects of a report outlining potential risks to the financial system. Mnuchin told the committee that the financial system’s “heavy and increasing reliance” on technology raises the risk that significant cybersecurity incidents could disrupt the financial sector and potentially impact U.S. financial stability.

“Substantial gains have been made, but I want to emphasize the need for sustained attention to these risks,” Mnuchin said. He noted that the report he was providing testimony on, the Financial Stability Oversight Council’s (FSOC) 2017 annual report, made a number of recommendations, including creation of a private sector council of senior executives in the financial sector to collaborate with regulators in order to mitigate cybersecurity threats.

During questions and answers from committee members, Mnuchin — choosing words carefully — indicated he has no particular, significant concern about cybersecurity today, but suggested that it is an area that needs to be continually monitored. “We have a process across all agencies to deal with this, and we’ve dedicated a lot of resources to the financial sector,” he said.

The Treasury secretary brightened up when asked about cryptocurrencies, which he called one of his favorite topics. He said he did not consider cryptocurrencies a threat right now, but he did have two concerns. First, to ensure that the electronic money methods are not used by “bad guys; that they don’t become the old Swiss-numbered bank accounts” of the modern world, and that they have the same Bank Secrecy Act (BSA) and anti-money laundering protections that traditional bank accounts have now.

(Reminder: The NASCUS-CUNA Cybersecurity Conference, June 3-5 in Nashville, takes an in-depth look at a broad range of cybersecurity issues; see the link below for more details.)

Agenda, registration: NASCUS-CUNA Cybersecurity Conference, June 3-5 (Nashville)


Seven questions focusing on NCUA’s field of membership rules and practices – particularly about how those policies may affect the credit union federal tax preference -- have been posed by the chairman of the tax-writing Senate Finance Committee to the agency. Responses are due by April 6.

Among the queries: What data does the NCUA collect on executive compensation at credit unions, how does NCUA examine associations that form a part of a credit union's field of membership, and what data does NCUA keep on associational charters that are rejected for not meeting associational common bond policies?

Sen. Orrin Hatch (R-Utah) in a letter this week asked NCUA Board Chairman J. Mark McWatters to provide the answers to questions based on the senator’s concern that “the credit union industry is evolving in ways that take many credit unions further from their original tax-exempt purpose.”

Hatch, who has said he is retiring at the end of his current term this year, asserted that “relaxed field of membership constraints” have opened the door to alternative capital and lifted limits on business lending, which, he wrote, “has traditionally been less associated with the mission of tax-exempt credit unions.” He said these types of activities should “cause a reflection” on the mission of credit unions and their tax preference.

Further, Hatch pointed to “associations” established by credit unions to confer membership eligibility, as well as geographic FOMs covering entire states or consisting of “disparate non-contiguous areas.” He also alleged that larger credit unions “operated similarly to taxable banks,” including by “purchasing previously for-profit banks and buying the naming rights to sports stadiums.”

“While state credit unions and nearly all other tax-exempt organizations pay Unrelated Business Income Tax on income from activities unrelated to their tax-exempt purpose, federal credit unions do not,” Hatch wrote, referring to UBIT. He also noted that federal CUs do not file annual Form 990s (unlike state charters) “which would provide the public with information on executive compensation.”

The senator posed the seven questions to McWatters, he said, to help the Finance Committee better understand “NCUA's role and policy with respect to overseeing credit unions.” The questions are:

  • How does the NCUA examine associations that form a part of a credit union's field of membership to verify that they promote a meaningful affinity and bond among members, and to ensure that they don't exist solely to expand a credit union's field of membership?
  • What data does the NCUA retain on associational charters that have been rejected for not meeting NCUA's associational common bond policies?
  • What data does the NCUA retain on community charters that have been rejected for having too broad of a geographic field of membership?
  • What recommendations does the NCUA make and what policies do they enforce regarding credit unions offering services outside of their tax-exempt purpose?
  • What data does the NCUA collect on executive compensation at credit unions?
  • How has the NCUA considered the issue of public disclosure of executive compensation since the GAO recommendation in 2006?
  • What recommendations does the NCUA make and what policies do they enforce regarding marketing expenditures such as corporate sponsorships?

Letter from Sen. Orrin Hatch (R-Utah) to NCUA Chairman Mark McWatters


Credit union and bank trade groups are urging the Senate to take up a regulatory relief bill passed late last year by the Banking Committee, arguing the bill will “contribute to local economic growth and job creation nationwide.” The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155), which was sent to the Senate floor in December by the Banking panel, would (among other things) specifically exempt credit unions loans for one-to-four unit, non-owner occupied residential loans from the cap on member business loans (MBLs) at a credit union; provide regulatory relief through changes to mortgage servicing and lending rules; help protect credit union employees who report suspected elder financial abuse, and; require the Treasury to study cyber risks.

Section-by-section summary of S 2155 on


The House passed legislation this week meant to curb fraud by making it easier for financial institutions (including state credit unions) to collect and store consumer identification information electronically. The “Making Online Banking Initiation Legal and Easy” (MOBILE) Act of 2017 (H.R. 1457) was passed overwhelmingly (397-8) Monday. It would allow financial institutions to store and use electronic copies of identification (from a swipe, copy or image of a driver’s license or other personal identification card) for verifying consumers’ identities as a fraud-prevention measure. The bill now heads to the Senate for consideration.

H.R.1457 - MOBILE Act of 2017


Comments will be due April 2 on proposed updates to credit union call reports and profiles, as approved by the NCUA Board last week. The “request for information” on the call report and profile – which, respectively, collect information about the financial condition of credit unions, and a credit union’s operations – are scheduled to be published in the Federal Register Wednesday. The RFI was published with a 60-day comment period. In issuing the RFI, NCUA said the data fields have been reduced from the existing forms by 40% (for the call report) and 20% (for the profile).

Modernizing Data Collection for Supervision of Credit Unions

BRIEFLY: New Fed chairman takes seat; Position open in CO; Updated website pages; Member renewals flowing in

Jerome H. “Jay” Powell will be sworn in as the next chairman of the Federal Reserve Board on Monday at 9 a.m., the Fed said this week … The Colorado Department of Regulatory Agencies (DORA) has an opening for a financial/credit examiner; see the NASCUS Career Opportunities web page for more details … Speaking of web pages, see our legislative and CFPB pages on for updates, including “comments due” dates, on all of the latest developments over the last week – and keep in touch in coming weeks as we continually update with those developments yet to come … NASCUS membership renewals for 2018 are flowing in at a record rate, NASCUS VP of Member Relations Alicia Valencia Erb notes – reflecting state system support for the association. “We really appreciate the backing of the system, because it ensures NASCUS can continue its critical work in advocacy, education and conferences, research, and media outreach throughout 2018,” she said.

NASCUS Career Opportunities

NASCUS Legislative Affairs pages


Information Contact:
Patrick Keefe,