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On January 20, Kathy Kraninger resigned from her position as CFPB director and newly sworn-in President Biden announced that Dave Uejio would serve as acting director until permanent leadership is confirmed by the U.S. Senate. President Biden officially nominated Rohit Chopra as the permanent director of the Bureau.
Uejio has been with the Bureau since 2012, and prior to his appointment as acting director, he has served as the Bureau’s Chief Strategy Officer since 2015. Chopra, who is currently a Democratic Commissioner of the FTC, previously served as the Bureau’s first student loan ombudsman and assistant director of the Office for Students before leaving the Bureau in 2015.
Kraninger’s resignation is a notable departure from the Bureau’s original structure, as outlined in Dodd-Frank, which called for a single director, appointed to a five-year term and only removable by the president for cause (i.e., for “inefficiency, neglect of duty, or malfeasance in office”). As previously covered by a Buckley Special Alert, in June 2020, the Supreme Court, in a plurality opinion in Seila Law LLC v. CFPB, held that the CFPB’s statutory structure violates the constitutional separation of powers by restricting the president’s ability to remove the director. The Court remedied the constitutional violation by severing the “for cause” removal language from the remainder of the statute. When Kraninger submitted her resignation on President Biden’s Inauguration Day, she stated it was in “support of the Constitutional prerogative of the President to appoint senior officials within the government who support the President’s policy priorities…”
On December 6, the U.S. Senate confirmed, in a 50 to 49 vote, Kathy Kraninger as the new Director of the CFPB for a five year term. Kraninger replaces acting CFPB Director Mick Mulvaney, under whom she served at the Office of Management and Budget (OMB) as the associate director for general government. Prior to OMB, Kraninger worked at the Department of Homeland Security and in Congress on the House and Senate Committees on Appropriations. In July, Kraninger testified before the Senate Banking Committee where she fielded questions covering a range of topics and notably stated that, “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” (Detailed coverage on Kraninger’s hearing available here.)
While her views on consumer financial protection issues are largely unknown, Kraninger is expected to continue with Mulvaney’s initiatives, at least in the near term. Currently, the Bureau is, among other things, (i) expected to release a proposed rule reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here); (ii) fighting three constitutional challenges to its single-director structure (InfoBytes coverage here and here and here); and (iii) receiving pushback from state Attorneys General on its reported decisions to no longer supervising financial institutions for compliance with the Military Lending Act (MLA) and reexamine the requirements and enforcement of the Equal Credit Opportunity Act (ECOA) (covered by InfoBytes here and here).
In a press statement released shortly after the vote, Mulvaney praised the Senate for confirming Kraninger and spoke of his time as acting Director, “[t]his last year has been an important step in the history of the Bureau as we take our place among the most notable regulatory bodies of our country -- and frankly the world. Like all transitions, it was not always as smooth as we would've all liked, but the Bureau has emerged stronger for it.”
On November 6, the U.S. District Court for the Western District of Texas granted two payday loan trade groups’ request to reconsider the court’s June decision to deny a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). The court styed the compliance date until further order of the court. The court previously (twice) denied requests to stay the compliance date (covered by InfoBytes here and here). However, the court reconsidered its decision after an October 26 status update, in which the Bureau informed the court of its intention to issue a notice of proposed rulemaking in January 2019 to reconsider parts of the Rule and the compliance date (covered by InfoBytes here).
As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit against the Bureau in April asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedure Act.
On September 12, the U.S. District Court for the Southern District of New York issued an order dismissing the New York Attorney General’s (NYAG) claims against a New Jersey-based finance company and its affiliates (defendants) under the Consumer Financial Protection Act (CFPA). In doing so, the court reversed its June ruling that the NYAG could proceed with its CFPA claims despite the court’s conclusion that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional and therefore, the CFPB lacks authority to bring claims against the defendants, as previously covered by InfoBytes.
According to the new order, the remedy for Title X’s constitutional defect is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. The court concluded that it lacked jurisdiction over NYAG’s remaining state law claims and dismissed the NYAG’s action against the defendants in its entirety.
The amended order is the culmination of a process that began with an August request by the CFPB for the court to enter a final judgment with respect to its dismissal of the CFPB’s claims, which would allow the Bureau to appeal to the U.S. Court of Appeals for the 2nd Circuit. (Previously covered by InfoBytes here.) After numerous letters were submitted by all the parties, the court granted the CFPB’s request for entry of final judgment and granted the defendant’s request to stay the NYAG claims during the pendency of the CFPB’s appeal. The NYAG subsequently responded with a letter requesting clarity on the court’s jurisdiction over the claims, which resulted in the new order dismissing the NYAG claims in their entirety.
On September 10, the CFPB rejected the arguments made by two Mississippi-based payday loan and check cashing companies (appellants) challenging the constitutionality of the CFPB’s single director structure. The challenge results from a May 2016 complaint filed by the CFPB against the appellants alleging violations of the Consumer Financial Protection Act (CFPA) for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings in March 2018, declining the argument that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. The following April, the 5th Circuit agreed to hear an interlocutory appeal on the constitutionality question and subsequently, the appellants filed an unopposed petition requesting for initial hearing en banc, citing to a July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here).
In its September response to the appellants’ arguments, which are similar to previous challenges to the Bureau’s structure—specifically that the Bureau is unconstitutional because the president can only remove the director for cause—the Bureau argues that the agency’s structure is consistent with precedent set by the U.S. Supreme Court, which has held that for-cause removal is not an unconstitutional restriction on the president’s authority. The brief also cited to the recent 5th Circuit decision holding the FHFA structure unconstitutional and noted that the court acknowledged the Bureau’s structure as different from FHFA in that it “allows the President more ‘direct control.’” The Bureau also argues that the appellants are not entitled to judgment on the pleadings because the Bureau’s complaint— which was filed under the previous Director, Richard Cordray— has been ratified by acting Director, Mick Mulvaney, who is currently removable at will under his Federal Vacancies Reform Act appointment and therefore, any potential constitutional defect in the filing is cured. Additionally, the Bureau argues that even if the single-director structure were deemed unconstitutional, the provision is severable from the rest of the CFPA based on an express severability clause in the Dodd-Frank Act.
On August 23, the Senate Banking Committee approved, in a 13-12 party-line vote, Kathy Kraninger to be the next Director of the CFPB, which carries a five-year term. Kraninger’s nomination next moves to the full Senate. Acting Director, Mick Mulvaney, will remain in his position for the foreseeable future, as the Federal Vacancies Reform Act allows him to continue in his acting capacity until the full Senate confirms or denies Kraninger’s nomination.
In July, Kraninger testified before the Senate Banking Committee where she fielded questions covering a range of topics, including whether she would appeal a June ruling by a federal judge in New York asserting that the CFPB’s structure was unconstitutional. While Kraninger did not provide a substantive answer to that question, she did comment that, “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” See more detailed InfoBytes coverage on Kraninger’s July nomination hearing here.
On August 13, two Mississippi-based payday loan and check cashing companies (appellants) filed an unopposed petition for initial hearing en banc with the U.S. Court of Appeals for the 5th Circuit regarding a challenge to the constitutionality of the CFPB’s single director structure. In April, the 5th Circuit agreed to hear the appellant’s interlocutory appeal, and now the appellants request the appeals court move straight to an en banc panel, stating “if [the] appeal is heard under the normal panel process, [the] Court will likely be asked to rehear that panel’s decision en banc, as occurred in the D.C. Circuit’s PHH case.” (covered by a Buckley Sandler Special Alert here.) The appellants cite to the July decision by the 5th Circuit ruling the FHFA’s single director structure violates Article II of the Constitution (previously covered by InfoBytes here) and note that a petition for rehearing en banc has already been filed in that case. The appellants suggest coordination in scheduling the potential en banc arguments should the court accept both petitions, arguing that the decision would “guarantee that the Fifth Circuit speaks with one voice regarding the constitutionality of these agencies’ structures.”
On August 10, the CFPB submitted a request to the U.S. District Court for the Southern District of New York for a pre-motion conference to discuss approval to file a motion requesting entry of final judgment with respect to the court’s June decision, which would allow the Bureau to appeal that decision. As previously covered by InfoBytes, the court had terminated the CFPB as a party to an action with the New York Attorney General’s office (NYAG) against a New Jersey-based finance company and its affiliates (defendants), concluding that the CFPB’s organizational structure is unconstitutional and therefore, the agency lacks authority to bring claims under the Consumer Financial Protection Act (CFPA). The court determined that the NYAG, however, had plausibly alleged claims under the CFPA and New York law and had the independent authority to pursue those claims.
In its letter, the CFPB argues that the conditions of Rule 54(b) are met because (i) there are multiple parties still involved in the litigation; (ii) the court’s decision as to the Bureau’s claims is final; and (iii) there is no just reason for delay. Moreover, the CFPB argues that allowing the NYAG to proceed with claims under the CFPA without the Bureau’s “statutorily-assigned right to participate in CFPA claims brought by state regulators” would result in hardship or injustice that could be alleviated by an immediate appeal. Additionally, the CFPB asserts that the issues to be appealed—the constitutionality of the Bureau’s structure and whether the for-cause removal provision is severable from the rest of the CFPA—are separable from the issues that remain to be decided between the NYAG and the defendants.
In response to the Bureau’s letter, the NYAG argued that, regardless of the court’s decision under Rule 54(b), the court should not stay the case and should resolve all of its claims. The defendants responded that they do not oppose the Bureau’s Rule 54(b) request but believe NYAG’s claims should be stayed during the pendency of the Bureau’s appeal, arguing that the Bureau implied this in their request. The Bureau subsequently denied any implication that the NYAG’s claims should be stayed.
CFPB Succession: Kraninger testifies before Senate Banking Committee; Bureau nominates Paul Watkins to lead Office of Innovation
On July 19, the Senate Banking Committee held a confirmation hearing for Kathy Kraninger on her nomination as permanent director of the CFPB. Prior to the hearing, the White House issued a fact sheet asserting that “Kraninger has the management skills and policy background necessary to reform and refocus the Bureau.” In her written testimony Kraninger shared four initial priorities: (i) the Bureau should be fair and transparent, utilize a cost benefit analysis to facilitate competition, and effectively use notice and comment rulemaking to ensure the proper balance of interests; (ii) the Bureau should work closely with other regulators and states to “take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activities”; (iii) data collection will be limited to what is needed and required under the law and measures will be taken to ensure the protection of the data; and (iv) the Bureau will be held accountable to the public for its actions, including its expenditure of resources.
Chairman of the Committee Senator Mike Crapo, R-Idaho, remarked in his opening statement that he hoped Kraninger “will be more accountable to senators on this Committee than Director Cordray was” but that he had “the utmost confidence that she is well-prepared to lead the Bureau in enforcing federal consumer financial laws and protecting consumers in the financial marketplace.” Conversely, Senator Elizabeth Warren, D-Mass., released a staff report prior to the hearing detailing Kraninger’s tenure at OMB and identifying her participation in several alleged management failures in the current administration.
During the hearing, Kraninger received questions covering a range of topics, including whether she would appeal last month’s ruling by a federal judge in New York that the CFPB’s structure was unconstitutional. (See previous InfoBytes coverage on the ruling here.) Kraninger responded that constitutionality questions are “not for me in this position to answer.” However, Kraninger did comment that “Congress, through [the] Dodd-Frank Act, gave the Bureau incredible powers and incredible independence from both the president and the Congress in its structure. . . . My focus is on running the agency as Congress established it, but certainly working with members of Congress. I’m very open to changes in that structure that will make the agency more accountable and more transparent.” Kraninger also commended recent efforts by the OCC to encourage banks to make small-dollar loans, discussed plans to consult Bureau staff on the use of the disparate impact theory in enforcement, and stated she will seek to promote the agency’s regulatory views through formal rulemaking instead of through enforcement.
On July 18, acting Director of the CFPB Mick Mulvaney announced the selection of Paul Watkins to lead the Bureau’s new Office of Innovation. The Office of Innovation—a recent addition to the Bureau—will focus on policies for facilitating innovation, engage with entrepreneurs and regulators, and review outdated or unnecessary regulations. Specifically, the Office of Innovation will replace what was previously known as Project Catalyst, which was—as previously discussed in InfoBytes—responsible for facilitating innovation in consumer financial services. Prior to joining the Bureau, Watkins worked for the Arizona Attorney General and helped launch the first state regulatory sandbox for fintech innovation. (See previous InfoBytes coverage on Arizona’s regulatory sandbox here.) Earlier in May, Mulvaney announced at a luncheon hosted by the Women in Housing & Finance that the Bureau is working to build its own regulatory sandbox program, and last year the agency took steps to make it easier for emerging technology companies to comply with federal rules by issuing its first “no action letter.”
On July 10, the Attorney General of Texas and 13 other state Attorneys General filed an amici curiae brief with the U.S. Court of Appeals for the 5th Circuit, challenging the constitutionality of the CFPB. As previously covered by InfoBytes, in April, the 5th Circuit agreed to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure in response to a CFPB action filed against the companies. The brief encourages the appellate court to disagree with the en banc decision of the D.C. Circuit, which upheld the Bureau’s structure (covered by a Buckley Sandler Special Alert). Instead, the Attorneys General argue, the court should find the structure unconstitutional rendering “all its actions unlawful.” The brief poses similar arguments to past challenges, including (i) the director should be removable at will by the president and (ii) the president’s removal power should only be restricted for multi-member commissions.
Notably, the U.S. District Court for the Southern District of New York recently disagreed with the D.C. Circuit decision, concluding the CFPB’s organizational structure is unconstitutional and terminated the Bureau as a party to an action because the agency lacked the authority to bring claims under the Consumer Financial Protection Act (CFPA). (Previously covered by InfoBytes here.)
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- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
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- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable