SUPREME COURT RULING ON CFPB CONSTITUTIONALITY IS NO REPRIEVE FOR LENDERS

Today the United States Supreme Court, in a 5-4 decision, declared that the structure of the directorship of the Consumer Financial Protection Bureau (CFPB) is unconstitutional.  The decision addressed the “only for cause” removal provision created by Congress which had effectively made its single-directorship above checks and balances because it prevented the Executive Branch, namely the President, the ability to remove the CFPB director at will.

The majority decided that there was an unconstitutional violation of separation of powers in a structure that concentrated enormous power in a single person who could not be removed except in extreme circumstances.  Although the issue has been brewing for years, having been raised early on during civil litigation proceedings by lenders who were subject to significant fines and penalties following a  CFPB audit or investigation, the matter became more significant when Presidential Donald Trump attempted to replace the agency head with his own pick, Nick Mulvaney, without alleging the “for cause” basis but as a matter of right.

Lenders seeing today’s headline might be rejoicing in a false interpretation of the ruling should they believe this means the death of the agency itself.  It does not. The Supreme Court separated the issue of the directorship removal clause from the balance of the provisions creating the agency, leaving it fully functional and intact.

Accordingly no lender should expect that any ruling or directive previously issued by the CFPB governing their operations will now suddenly become moot.  Compliance officers can rest easy, as they are still a valuable asset to lenders in interpreting and managing CFPB regulatory and compliance expectations and rules governing mortgage and banking operations.

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