Financial reform under Dodd-Frank has taken some heat and even encountered a few setbacks lately, namely the removal of the Financial Stability Oversight Council’s “systemically important financial institution” (SIFI) from MetLife and the Consumer Financial Protection Bureau’s pending trial from PHH Corp.’s appeal of a $109 million penalty handed down last June.
Three weeks after testifying before the House Financial Services Committee, CFPB Director Richard Cordray once again sat on the hot seat for the CFPB’s Semi-Annual Report to Congress on Thursday in the Senate Banking Committee, to defend what Dodd-Frank supporters consider to be one of the legislation's greatest achievements—the agency he directs, the CFPB. Once again, Cordray touted the CFPB’s achievements in the last year, namely the publishing of complaint narratives in the Consumer Complaint Database starting in June 2015 and the publishing of the CFPB’s monthly market snapshot starting in July 2015.
“Over the next six months, the Bureau will continue implementing the Dodd-Frank Act and using its regulatory authority to ensure that consumers have access to consumer financial markets that are fair, transparent, and competitive,” Cordray said in his testimony Thursday.
Committee Chairman Richard Shelby (R-Alabama) wasn’t so sure, however. He commented on the PHH case, one in which the New Jersey-based mortgage lender is challenging a $109 million penalty handed down by Cordray in June 2015 for alleged violations of RESPA. With the handing down of the $109 million penalty, Cordray overturned an administrative judge's original disgorgement order of $6.4 million, saying that penalty was too lenient. PHH claims the CFPB is abusing its power. PHH appealed the penalty, the first institution to challenge the CFPB in court, and the trial is set to begin next week.
“The only effective restraint available now resides in the courts,” Shelby told the Committee on Thursday. “Fortunately, this week a federal Court of Appeals has directed the CFPB to defend the Constitutionality of its structure. This particular case follows what is now becoming a string of court decisions criticizing or striking down this Administration’s implementation of Dodd-Frank provisions—including the FSOC’s so-called systemically-important designation of MetLife, the SEC’s cost-benefit analysis, and the SEC’s conflict minerals rule.”
Committee Ranking Member Sherrod Brown (D-Ohio) answered the CFPB’s detractors who claim that the Bureau is unaccountable, a frequent criticism coming from Republican lawmakers.
“The CFPB is subject to three separate annual audits and the banking agencies have unprecedented authority to veto CFPB rules that threaten safety and soundness or financial stability,” Brown said. “Yet the CFPB’s existence continues to be attacked with false arguments that it lacks accountability.”
Shelby told the Committee he believes the judge’s decision to remove the SIFI tag from MetLife in late March is only the beginning of the Dodd-Frank rollback.
“I believe that future legal challenges will lead to the invalidation of many parts of Dodd-Frank,” Shelby said. “This is what happens when a 2,300-page bill is forced through Congress without sufficient process, and before the lessons of the financial crisis were fully understood. Congress did not even wait for the Financial Crisis Inquiry Commission’s work to be completed or its report to be released before it passed Dodd-Frank and created the CFPB.”
On Tuesday, April 5, the Committee held a hearing to assess the effects of consumer finance regulations. In that hearing, three witnesses representing the financial industry testified that the CFPB was doing more harm than good to the very consumers it sets out to protect by making financial products either more expensive or less available. Brown wasn’t so sure about that, however.
“Bipartisan polling shows that 3 in 4 voters support the agency,” Brown told the Committee on Thursday. “Just this morning, the Committee received petitions from hundreds of thousands of Americans supporting the CFPB.”
Brown also pointed out the $11.2 billion that has been returned to approximately 25 million consumers who have been harmed by predatory practices in the financial industry.
While Brown lamented the fact that in Tuesday’s hearing three witnesses represented the financial industry while only one witness represented consumers, Shelby lamented the fact that no member of the financial industry was consulted when Dodd-Frank was being drafted.
“It still strikes me as stunning that this Committee approved this massive piece of a legislation without deposing a single market participant,” Shelby said. “The Committee didn’t subpoena a single document from a single person or financial institution. And, we are now starting to see the results of this partisan, uninformed effort.”