The Consumer Financial Protection Bureau now is an executive agency subject to the president’s executive orders, according to House Financial Services Committee Chair Jeb Hensarling (R-Texas). In a letter to CFPB Director Richard Cordray, Hensarling stated that the Oct. 11, 2016, decision by the D.C. Circuit Court in PHH v. CFPB requires the bureau to follow executive orders requiring agencies to ensure the benefits of their proposed regulations outweigh the costs.
The CFPB also must abide by executive orders requiring consultation with Indian tribal governments and state and local officials about its rulemaking activities, Hensarling wrote.
These executive orders issued by presidents Clinton and Obama are modest attempts to ensure that executive agencies are accountable to the American people and do not recklessly write regulations that damage our economy,” Hensarling stated. “The court’s ruling makes clear that the Constitution requires the CFPB to operate as an executive agency, making the Bureau obligated to fully comply with these executive orders.”
Court ruling. The U.S. Court of Appeals for the District of Columbia Circuit ruled in PHH v. CFPB that “the CFPB is unconstitutionally structured but can continue to operate as an executive agency rather than an independent agency,” noted Hensarling. The committee chair stated to Cordray that because the Court severed the for-cause removal provision from Section 1011(c) of the Dodd-Frank Act, “the President now will have the power to remove you (and any future Director) from office at will, and to supervise and direct your actions.”
Executive orders apply to CFPB. Hensarling referred in his letter to several executive orders by Obama and past presidents that govern the rulemaking activities of executive agencies, orders under which the CFPB now is bound, according to the chair. “Because some of these orders were advisory rather than mandatory for independent regulatory agencies, you and your staff may have been previously under the mistaken impression that these orders did not apply to the CFPB,” Hensarling wrote. The PHH decision makes it clear that the CFPB no longer can function as an independent agency. Therefore, he stated, “it is also clear that Executive Orders applicable to executive agencies” now include the bureau.
Summary of executive orders. The committee chair summarized several of the executive orders that he claims now pertain to the CFPB.
Executive Order 12866: Regulatory Planning and Review—issued by President Clinton in 1993, the order mandates that federal agencies “promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need.” Agencies must assess the costs and benefits of available regulatory alternatives, including the alternative of not regulating.
Executive Order 13563: Improving Regulations and Regulatory Review—issued by President Obama in 2011, the executive order reiterates the general principles of regulation outlined in Executive Order 12866. Agencies must: propose or adopt a regulation only after a reasoned determination that its benefits justify its costs; tailor regulations to impose the least burden on society; and select regulatory approaches that maximize net benefits.
Executive Order 13132: Federalism—issued by President Clinton in 1999, the order requires an agency to prepare a “federalism summary impact statement” whenever it issues a rule with “significant federalism implications.” The statement must include a description of the agency’s prior consultation with state and local officials and detail the officials’ concerns and the agency’s position supporting the regulation.
Executive Order 13175: Consultation and Coordination with Indian Tribal Governments—issued by President Clinton in 2000, the executive order requires agencies to have an “accountable process” that ensures “meaningful and timely input by tribal officials” when developing regulations that have tribal implications. No agency can adopt a regulation that has tribal implications and preempts tribal law without first consulting with tribal officials, providing the Office of Management and Budget with a statement on the tribal impact and any written communications submitted to the agency by tribal officials.
Online lender uses decision in CFPB action. Integrity Advance, LLC, an online lender, has been granted a stay in its appeal of an administrative law judge’s Recommended Decision by using the holding in PHH as intervening law. The ALJ had recommended that Integrity pay more than $38 million in restitution to consumers who were allegedly deceived by the costs associated with the company’s short-term loans. Cordray, granted Integrity’s motion to stay and remanded the case to a Hearing Officer.
Integrity argued that the ALJ decision “directly contradicts the D.C. Circuit’s decision in PHH, and cannot stand in light of the substantial, intervening change in controlling law.” The D.C. Court’s holding that statutes of limitation apply to CFPB administrative proceedings “directly affects the hearing officer’s decision,” according to Integrity’s motion. Integrity maintains that the statutes of limitation had run before the bureau filed its claims against the online lender.
ALJ Decision. The administrative law judge agreed with the CFPB’s allegations that Integrity and its CEO, James R. Carnes, deceived consumers about the cost of short-term loans. The judge determined that the lender:
- violated the Truth in Lending Act by disclosing incorrect finance fees and annual percentage rates in its loan agreements;
- violated the Electronic Funds Transfer Act by conditioning its loans on repayment by electronic means; and
- violated the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by, among other things, using a loan agreement that was likely to mislead consumers, and violated the CFPA’s prohibition against unfairness by using remotely created checks to obtain funds from consumers’ accounts after those consumers blocked authorization for electronic debits.
In addition to recommending more than $38 million in restitution, McKenna also recommended a civil penalty against Integrity Advance of more than $8.15 million and a civil penalty against Carnes for more than $5.4 million.
Both Integrity Advance and the CFPB appealed the decision. Integrity Advance objected to all findings of liability and all recommended relief against them in the Recommended Decision, while the CFPB also appealed portions of the judge’s recommended decision in its enforcement action.
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