There is such a thing as a second act. Even court cases can be resurrected from the dead. Two years after State National Bank of Texas called the Consumer Financial Protection Bureau on the carpet, challenging its constitutionality in a case that was dismissed by a federal court, the D.C. Circuit court breathed new life into the debate when it reopened the case and concluded that State National Bank has legal legs to stand on and can sue, despite the fact that it is not directly supervised by the agency.
Although the D.C. Circuit court didn’t buy all of the bank’s claims, the court didn’t dismiss the bank’s claims that the CFPB should be run by a commission, instead of a single director, nor did it shoot down the bank’s contention that CFPB’s Director, Richard Cordray was improperly appointed during a Congressional recess.
"The proper ruling is that a recess appointment requires the Senate to be in recess. The Senate should determine whether it is in recess by its own rules. So a unilateral decision by the executive branch that the Senate is in recess should be disregarded," says lawyer David Rubenstein who owns CreditShout.com and CreditForums.com.
"The solicitor general’s office will argue that this is a political question and should not be decided by the courts. If the recess appointment is struck down, then any rules and regulations passed by the CFPB also need to be struck down. Courts generally try to avoid this kind of mess. So you may see some sort of compromise," he adds.
The four-year old CFPB has been in the spotlight for its fight for a plethora of consumer financial protections. The agency has no shortage of enemies and some say the resurrection of the case is just another attempt to beat up on the agency.
"This is an old fight with the CFPB. Some people won’t give up until its demise," says Ruth Susswein, deputy director, national priorities for Consumer Action. "This is a waste of time. Over the last four years the bureau has shown that it is reasonable and fair, and takes into consideration all parties’ concerns, even people in the industry would have to grudgingly agree."
Ed Mierzwinski, consumer program director for U.S. PIRG says that powerful interests continue to attack the CFPB, "Banks, payday lenders and debt collectors are urging Congress to take away the CFPB’s independent funding so that they can cut its budget through the appropriations process, then limit what it can do with the money that is left through restrictive policy ‘riders’," says Mierzwinski, who adds that since 1864, it has been the nation’s policy that bank regulators have independent funding. "It’s no new crazy idea."
Furthermore, he says CFPB opponents want to replace its director with a commission. "They talk a lot of high-minded blather about it, but the fact is this – some financial agencies have single directors, some are led by commissions. Their intent is to create a new era of horrible Senate confirmation gridlock for the bureau. It took two years to confirm its first director, how long will it take to confirm five commissioners? The CFPB is running smoothly and has already returned $10 billion to ripped-off consumers, including veterans and service members," says Mierzwinski.
Why the case matters
As for this case, scoffs Mierzwinski, "Its proponents climbed a very low bar (standing to sue) to get the case reopened. Most experts on both sides think the odds of them actually winning are very low – achieving their sketchy Constitutional claims on the merits is an extremely high bar."
The case is significant, says Brooklyn Law School professor David Reiss, "It is opening up a new can of worms for the CFPB and the consumer finance industry. But the court defers on the meat of the matter as it remands the case ‘to the District Court for it to consider the merits of the claim.’"
Reiss contends that cases such as this increase uncertainty for regulated companies, and for their customers. "Until the case is decided and the new regulatory environment becomes clear, we should expect more caution in the development of new consumer finance products and services," says Reiss.
Wayne Sanford, owner of New Start Financial Corporation says, "That the suit is being looked again is troublesome. In my business, I see firsthand the blatant disregard the credit bureaus, as well as debt collectors and banks have for the consumer when it comes to following the laws."
While the court case is not to be taken lightly, Susswein says personally she isn’t overly concerned. Edgar Dworsky, founder of Consumer World is hopeful, "The CFPB performs important functions to protect consumers. It is safe to say that the CFPB is not going anywhere soon."