Sixteen state attorneys general have filed briefs in PHH Corporation, et al. v. Consumer Financial Protection Bureau, pending in the U.S. Court of Appeals for the District of Columbia Circuit on petitions for rehearing. The case challenges the constitutionality of the structure of the Consumer Financial Protection Bureau.
The CFPB was established as part of the Dodd Frank Act with a mandate to protect consumers of financial products. Prior to the DFA, enforcement of financial consumer protection statutes was the job of federal bank regulators as part of their bank examination function.
That responsibility was transferred to the CFPB because of a perception in Congress that bank regulators were principally focused on assessing the safety and soundness of banks, and were much less concerned about protecting consumers of financial products. The CFPB also has regulatory authority over non-bank financial enterprises, which the federal banking agencies never had. So, while the DFA in general, and the existence of the CFPB in particular, is on the chopping block of the new Congress and Administration, at least 16 states see the value of the CFPB.
As Vermont Attorney General Donovan puts it in Vermont’s brief to the D.C Circuit, “This is about protecting Vermont consumers by preserving the independence of our national consumer watchdog. It is critical that Vermonters on Main Street be protected from abusive financial practices on Wall Street. The CFPB is an important partner to the states in addressing such practices and we believe that its continued ability to use all of its powers towards that end must be protected.”
Congress tied the CFPB’s funding to revenue generated from the Federal Reserve in trading government securities; therefore the CFPB does not rely on taxpayers to fund its operations. Bottom line, regardless of the merits of the D.C. Circuit’s opinion that the structure of the CFPB is unconstitutional, a significant minority of states see the value of the agency.
The D.C. Circuit severed the removal of the director of the CFPB only “for cause” to remedy the constitutional infirmity. The Director now serves at the will of the President.