On Wednesday, October 19th, Republican Congressman Jeb Hensarling, Chairman of House Financial Services Committee, sent a letter to Consumer Financial Protection Bureau (CFPB) Director Cordray asking him to provide written assurance that the CFPB will comply with certain limits on executive agencies set forth in various prior Executive Orders.

The letter was in response to the October 11, 2016 decision by the U.S. Court of Appeals for the District of Columbia Circuit in PHH Corp. v. Consumer Financial Protection Bureau, (United States Court of Appeals, D.C. Cir., Case No. 15-cv-01177).

In the PHH case the federal appeals court ruled the structure of the CFPB was unconstitutional.  insideARM has provided extensive coverage of the case and its impact. See our initial Breaking News story, our analysis by Kelly Knepper-Stephens, and our Collection of Reactions From ARM Industry Experts.

In the PHH decision, the D.C. Court of Appeals panel ruled that the CFPB’s single-director, “removable-only-for-cause,” structure was unconstitutional.  To remedy the constitutional defect, the court struck the “removal-only-for-cause” provision from the Dodd-Frank Act.  In doing so, the court determined that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”   The court then opined that as a result of this court mandated structural change, the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”

Congressman Hensarling wrote:

“As you may be aware, President Obama and past Presidents have issued several Executive Orders governing the rulemaking activities of executive agencies. Because some of these executive orders were advisory rather than mandatory for independent regulatory agencies, you and your staff may have been previously under the impression that these orders do not apply to the CFPB. However, the PHH decision makes clear that the Constitution requires that the CFPB be treated as an executive agency, and that the CFPB is not, and may no longer be considered to be, an independent regulatory agency. Consequently, it is also clear that Executive Orders applicable to executive agencies apply in full to the CFPB.” [Emphasis added by insideARM]

Congressman Hensarling’s letter then cites various Executive Orders that impose regulatory requirements on executive agencies.  Among the Orders Hensarling raised are:

Executive Order 12866: Regulatory Planning and Review

Issued by President Clinton in October, 1993, Executive Order 12866 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, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people. In deciding whether and how to regulate, agencies must:

Assess all costs and benefits of available alternatives, including the alternative of not regulating.  Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider.  Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.

Executive Order 13563: Improving Regulations and Regulatory Review

Issued by President Obama in January 2011, Executive Order 13563 reiterates the general principals of Executive Order 12866 and says agencies must: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; (2) tailor regulations to impose the least burden on society; and (3) select regulatory approaches that maximize net benefits. The order also directs agencies to “use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” It also requires agencies to develop a plan under which they would periodically review their existing significant rules.

In his letter, Mr. Hensarling asks Director Cordray to provide written assurance by October 26, 2016 “that the CFPB will comply in full with the requirements of the Executive Orders referenced in the letter prior to issuing any future final rule, including rules governing arbitration agreements; payday, vehicle title, and installment loans; and debt collection.”  [Emphasis added by insideARM]

insideARM Perspective

It will be interesting to see Director Cordray’s response to Congressman Hensarling, assuming he provides a response at all.

Congressman Hensarling’s letter raises issues that are very real to the ARM industry. They are issues that have been previously raised during the SBREFA process.  The potential costs to agencies to comply with the CFPB’s Outline of Proposed Rules are significant, regardless of whether you are a still considered a small business or a large business.  They are costs of the magnitude that could potentially cause businesses to close.

The additional “cost/benefit” review required by the Executive Orders referenced by Congressman Hansarling may provide some additional consideration for all ARM participants. On the other hand, if the CFPB complies with these fairly general orders which are open to interpretation, it may do little other than prolong the rulemaking process.

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