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The Consumer Financial Protection Bureau, Week in Review for January 21 - 25, 2013

After two weeks of non-stop rule releases related to the mortgage industry the flurry of CFPB activity seemed to slow a notch, maybe allowing time for everyone to devour the thousands of pages of light reading on their desks. Nonetheless several significant events took place last week, including one that may call into question certain actions taken by the CFPB under Director Cordray.

“Today's decision to renominate Richard Cordray to be Director of the Consumer Financial Protection Bureau after using an unconstitutional recess appointment is premature, given the outstanding concerns about the bureau and the legal challenge to the recess appointment.”
- Senator Michael Crapo, R-Idaho, the new ranking member of the banking committee on January 24, 2013, as reported in American Banker, “Cordray's Second Nomination Challenge," January 25, 2013.

January 22, 2013

Delayed — The CFPB announced a temporary delay of the international remittance transfer rule, amending Regulation E, which implements the Electronic Fund Transfer Act.

In a CFPB blog piece, staffer David Silberman announced that the Bureau would be temporarily delaying the current effective date of the rule, e.g., February 7, 2013. The new date has yet to be announced but is expected later this year. The purpose for the delay is to allow additional comment for consideration concerning three proposals published previously on December 31, 2012. Comments are due by January 30, 2013. In addition, in light of the delay, the CFPB noted that it will “reassess the earliest date on which, if necessary, countries [safe harbor list] may be removed from the list in connection with the finalization of the December 2012 Proposal, although that date will not be before May 1, 2013.”1

January 24, 2013

President Obama Renominates Richard Cordray

In a move that surprised many, the President, perhaps yielding to concerns that his original appointment lacks constitutional muster, renominated Richard Cordray to the position of Director of the CFPB. But this renomination will not be without its challenges. Republican leaders appear to be gearing up for a battle.2

“This is very bad news for the bureau, there is no way to slice it any other way,” Deepak Gupta, a former top lawyer at the CFPB, said in an interview. “There is little question that this applies to the Cordray appointment.”
- Answer to Cordray Appointment, Bloomberg, January 26, 2013.

January 25, 2013

Game Changer: A three-member panel of the D.C Circuit finds in Noel Canning v. NLRB that three board-member appointees to the National Labor Relations Board (NLRB), who were appointed on January 4, 2012, the same day as Cordray, were unconstitutional appointments made outside the requirements for a valid recess appointment.

In an opinion released Friday morning, the three-member panel held, “[C]onsidering the text, history, and structure of the Constitution, these appointments were invalid from their inception.”3   The issue before the court was whether the president’s recess appointments were constitutional. It has been reported that the NLRB plans to appeal to the U.S. Supreme Court.4   Meanwhile, the CPFB reports that it plans to continue an aggressive swath of regulation and enforcement notwithstanding questions regarding the validity of Cordray’s appointment.

While this case concerns the NLRB, the implications for the CFPB are enormous as Director Cordray was appointed in the same manner. And yet, the White House appears to be taking the position that the decision was novel and has no bearing on the appointment of Director Cordray.5

However, according to a report issued by the Offices of Inspector General for the Department of Treasury released on July 15, 2011, there are specific limitations on the CFPB until a Director is in place.6  Pursuant to Section 1066(a) of Title X, of the Dodd-Frank Consumer Protection Act, the Treasury Secretary's authority to carry out CFPB functions was limited.

Further, the report notes that the Treasury Secretary has no authority concerning certain newly created, as opposed to transferred, functions if there is no Director by the designated transfer date, e.g., July 21, 2011. Those newly established authorities include: the power to exercise the prohibition of unfair, deceptive or abusive acts or practices, also known as UDAAP; to prescribe rules and require model disclosure forms under subtitle C; to prescribe rules under Section 1022, including the filing of limited reports for the purpose of determining whether a nonbank should fall under the CFPB's supervision; and the power to supervise nondepositories under Section 1024. This later point can have far reaching impact as it limits the ability to examine mortgage servicers, originators, pay day lenders, student lenders and other large participants.


1 See Federal Register, Vol. 78, No. 14, at 4726, January 22, 2013.

2 See Cordray’s Second Nomination Challenged, American Banker, by Gillespie, K., January 25, 2013.

3 See Slip Opinion, Noel Canning, A Division of the Noel Corp., Petitioner v. national Labor Relations Board, Respondent, International Brotherhood of Teamsters Local 760, Intervenor, at 30 (D.C. Cir. Jan. 25, 2013) 

4 See Court Rules Obama Recess Appointments Unconstitutional, WSJ, by Associated Press, January 25, 2013.

5 See Answer to Cordray Appointment, Bloomberg, by Dougherty, C., January 26, 2013.

6 See FRB OIG 2011-03, OIG-11-088, at Pgs. 3-4, July 15, 2011.

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Gil Rudolph is co-chair of the National Financial Institutions Practice. His practice focuses on the representation of  finance companies, mortgage lenders and servicers, banks, title insurance companies and other consumer financial service providers in regulatory and litigation matters. Gil also represents various alternative financial service providers including payday lenders, check cashers, pawn and auto title lenders. Gil additionally represents various participants in the credit, debit, and stored value card issuance and processing industries.

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Scott Sheehan is a business lawyer with a national practice in banking and financial institutions, and consumer and commercial financial services.  He is known for his issue advocacy and development of legal strategies for the banking and consumer finance sector, and co-authors the Texas Usury Law Handbook by West Publishing. He focuses his practice on legal and public policy issues and innovative solutions,  including new product development, legal compliance, litigation, and issue advocacy in judicial, legislative, administrative, and arbitration proceedings.  Scott...

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