The Consumer Financial Protection Bureau has appealed the three-judge ruling in the PHH Corp. case in the Washington, D.C. Circuit Court that the Bureau's structure is unconstitutional and that the director could be removed without cause. The new administration that is about to begin has promised to cut back regulations for the financial industry, so how would a court ruling on the CFPB affect the mortgage industry going forward? Erin Sheckler, President of NexTitle, weighs in on the topic.
What will be the fate of the CFPB if it is ruled unconstitutional by a full court?
I don't believe there will be an immediate dismantling of the CFPB. The Republicans have been submitting legislation to dismantle the CFPB and clip its wings almost since its inception but Obama has held them at bay with threats of veto. If the district’s court ruling is upheld, I think that Trump will probably take the opportunity to get rid of Cordray very shortly after inauguration and he'll either implement the Republican, Randy Neugebauer from Texas, in Cordray’s place or the Bureau will be led by committee. After that, we will likely see legislation slip through that unwinds different provisions until the CFPB is eventually chilled. I do think there will be some immediate cooling of the CFPB’s more fervent enforcement actions.
If the full court rules in favor of the CFPB and lending regulations remain loose, are we in danger of another housing bubble, followed by an inevitable crash?
If there were to be a full dismantling of the CFPB, we would definitely be in danger of that. However, almost every provision of the CFPB exists within other legislation, so even if we lose the CFPB, we would still have the FTC, the OCC, the FDIC, etc. We just wouldn't have the zealous enforcement that the CFPB has under its single director status.
One of the biggest complaints that the Trump Administration has regarding Dodd Frank is that it overly restricts access to lending and creates an onerous and debilitating amount of regulation for smaller and community banks. So I think there will be some reprieve on lending institutions but I don't think we'll see it anywhere near the extent that we did pre-2008.
What is the soonest that we will see the impact of the court's decision in regard to the future of lending?
I think the soonest we would see an impact is if the court denied the appeal. The CFPB's charter only allows them to appeal to the district court level, so if they're denied an appeal there, they are done. Alternatively, after inauguration on January 21, Trump could remove Cordray based on the District’s Court’s ruling. If the case is still up on appeal, it’s a gray area but one Trump could definitely venture into. If they decide to entertain the rehearing en banc, it could be years before we see the full impact.
What's the most ideal outcome for the situation to play out?
The CFPB did some good things, but I think it was overzealous in its approach which resulted in unintended consequences. A positive outcome for all would be to see some loosening of regulations that allow community banks to provide mortgages to more consumers and more readily lend to small businesses. There needs to be a solution to help consumers get access to credit who were in the subprime market before and still need access to funds. Smaller banks have been overly burdened by the legislation and the unintended consequence has been to make the big banks bigger. I think a bi-partisan committee is a really good outcome if they can actually get anything accomplished.
The CFPB as it currently operates is definitely in a precarious position. I think the actual unwinding of the current structure will be a slow and meticulous process. Trump was really vocal about a lot of things on the campaign trail, but what we've seen is a more restrained approach and a little more control than what the initial campaign foreshadowed. Hopefully we'll land somewhere in the middle without a complete dismantling of Dodd-Frank and a re-creation of the circumstances that created the financial meltdown. A little more regulation, but without the incredibly costly oversight that's been strangling the industry.