The Supreme Court, in a 5-4 decision along partisan
lines, took a chunk out of the intentions the Dodd-Frank Act had for the Consumer
Financial Protection Bureau (CFPB) when it created it. The court ruled that the
single-director structure of the agency is unconstitutional as is its limits on
the President’s ability to replace its occupant.

When Congress established CFPB it set up its funding mechanism
independent of the House appropriations process, ruling its budget should come
from the Federal Reserve. It also established a single director to head the
agency and protected the occupant from being fired except for “inefficiency, neglect of duty or
malfeasance in office” during a five-year term, ¬†Each stricture was a bid to insulate the
agency from political interference.

FHFA which regulates and is currently conservator for
the mortgage giants Fannie Mae and Freddie Mac has a similar structure. The decision could also put into
question agencies overseen by boards or commissions established with political
buffers. For example, the Federal Reserve’s Board of Governors has members who are
appointed to 14-year terms and are not removable by the president except for cause.

The decision, written by Chief
Justice John Roberts, said that CFPB’s structure vests too much power in the
hands of one person, and that the president has broad authority to appoint and
remove
agency heads.

“The CFPB’s single-Director
structure contravenes this carefully calibrated system by vesting significant
governmental power in the hands of a single individual who is neither elected
by the people nor meaningfully controlled (through the threat of removal) by
someone who is,” Roberts wrote.

He also stated that the agency’s
structure “has no foothold in history or tradition” and violates the separation
of powers
. However, the court will allow the agency to continue to operate and
did not make any rulings about the Dodd-Frank Act. One fear, when the
challenges to the structure first began, was that an unconstitutional ruling
would endanger the many decisions, settlements, and rulemakings the agency has
made over a 9-year period. This decision leaves those actions and rules, such
as the Qualified Mortgage rule intact.

Katie O’Donnell, writing in
Politico, said the Bureau was polarizing from its start during the Great
Recession. “with Democrats casting it as a long-overdue cop on the beat for
consumers after the 2008 financial crisis and Republicans slamming the agency
as an example of regulatory overreach.

“Yet where Democrats see
independence, Republicans see a lack of accountability. Republicans have long
sought to overhaul
the agency’s single-director structure and replace it with a
bipartisan commission akin to the leadership of other financial regulators. GOP
attacks have abated since Trump put his own people in charge of the bureau, but
the leadership issue has never been resolved.”

The current director, Kathy
Kraninger, was appointed by President Trump after the first director, Richard
Cordray, resigned in 2017 to run for governor of Ohio. That provoked a court
battle after Mick Mulvaney, the Director of the Office of Management and
Budget, was appointed acting director. The Dodd-Frank Act sets up an order of
succession for the Bureau, authorizing the assistant director to act as director
until the Senate can confirm the President’s next appointment. Kraninger was
Mulvaney’s assistant at OMB.

The Supreme Court ruling does set up
an interesting scenario. Kraninger previously had a good chance to fill out her
five-year term. She now has to assume her appointment, which was highly
controversial at the time, will not outlast the current administration should
the White House turn over in January. Given the recent history of presidential
appointments, she also has to worry she won’t last even that long.

By Jann Swanson , dated 2020-06-29 13:38:07

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Courtesy of Mortgage News Daily

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