Though written shortly prior to the elevation of King Donald The Swap Drainer to the Throne of Hubris, an analysis by Dorsey & Whitney partner Joe Lynyak offers some interesting insights (and some amusing back-handed bitch-slapping) regarding the potential mischief consequences of the decision of the three judge panel of the D.C. Court of Appeals in favor of PHH and against 1/32 Cherokee Princess Spouting Bull's brain-and-red-haired-step-child (aka the CFPB). As expected (by me, although Joe cautioned the CFPB from doing so), the CFPB has appealed the decision to the full Court (composed of a majority Democratic appointees). Thus, the saga's ending may only become clearer after The Orange Lord takes the oath of office and begins to roll back the regulatory onslaught of the past eight years, and the current Dark Prince of the Adjustment Bureau (aka "Recess Richie") either resigns and slithers back to The Buckeye State or becomes a favored target on the firing range for the Human Blowtorch who will make us great again. In the meantime, Joe's observations offer a blueprint in pot-stirring for those individuals, financial institutions, and other businesses that have been on the receiving end of the prime mover in the crusade to make the world safe for totalitarian micro-managers of equality of condition in the name of diversity, disparate impact, and creating a cradle-to-grave utopia here on Earth.
Of particular interest to those of us who tend to fall into an ecstatic swoon at the mere whisper of the Adjustment Bureau's latest example of the efficacy of regulation-by-enforcement-action, are Joe's "observations" for those victimized by subject to the enforcement actions of the CFPB. Among the intriguing possibilities are the following:
- Seeking recovery of civil money penalties previously paid the CFPB via a suit in the federal Court of Claims pursuant to the Tucker Act.
Because the CFPB arguably falsely claimed it was a validly existing independent agency and was authorized to enter into a contract of settlement with a counterparty, the Court of Claims might look favorably on such an action and treat consent order as contract claims within its jurisdiction.
That sounds like it might be a load of fun for all concerned, don't you think?
- Seeking to overturn the decision on one of the grounds successfully pursued by PHH: statutes of limitation (SOLs).
If an enforcement order and alleged violations relates to a time period that currently now exceeds the applicable SOL, the remedial measures might now be beyond the CFPB’s ability to relitigate the same. Importantly, in reference to the past payment of CMPs assessed by the CFPB, an evaluation whether alleged violations exceed a SOL if computed today would constitute a basis for seeking reimbursement of previously paid CMPs.
Tons of fun roaring down that avenue, as well, I'd say. Let's throw that one against the wall and see if it sticks!
If Joe had stopped there, the article would have been fully worth the time it took to read it. However, he gives us all a bonus by making both "quantitative" and "qualitative" suggestions for improvement to the CFPB. While one might quibble with the quantitative/qualitative nature of a particular recommendation, that's like the faux debate of whether Miller Lite's best trait is that it tastes great or is less filling. No matter what the classification, the CFPB would be well-advised to heed them, which, of course, means that it will do so when Porky sprouts wings and flies circles around the Washington Monument.
Generally, the CFPB might elect in the future to concentrate on producing regulatory guidance that establishes bright-line tests to be followed by the
industry, rather than complex and poorly written regulations.
Second, the CFPB should cease its practice of refusing to provide clear guidance to regulated companies, and engage in real constructive dialogue with industry participants...In any event, a commission form of governance would significantly assist by bringing to the table qualified experts whose expertise extends beyond formerly acting in the capacities of attorneys general and prosecutors.
[T]he CFPB’s enforcement division should be placed under the direct supervision of the legal division of the CFPB. Anecdotally, the current organizational of the CFPB encourages aggressive enforcement behavior without reasonable policy balancing outside of the enforcement silo that currently exists...The potential for abusive enforcement in light of the CFPB’s exceptional range of penalty alternatives argues strongly for the imposition of legal oversight of the CFPB’s enforcement mechanisms based upon sound policy.
Joe's "qualitative" suggestion is that the CFPB take a lesson from the D.C. Circuit, which he characterizes as the court that "is most likely to review CFPB conduct in the future," and take to heart its implicit warning that the CFPB can either "conform to the historical parameters of federal agency administrative law" or continue to have its wings clipped until it goes the way of the flightless (and now extinct) Do-Do. That suggestion was made prior to the CFPB's appeal, so it's obvious that the CFPB will ignore that one. Jeb Hensarling and the Republican majority in the House and Senate, probably allied with the anti-regulatory bias of He-Who-Tweets-In-The-Wee-Hours (although who knows where that carnival barker will eventually land on any issue), will most likely need to impose upon the CFPB a commission format and other structural changes (albeit over the war chants of Senators Warren and Sanders) before it stops "Going Rogue."
Perhaps this latest election, rather than ushering in the four-to-eight-year freak show that many of us feared no matter which of the leading contenders prevailed, might have unintended consequences that, unlike those of Franken-Dodd, might actually be good news for financial institutions, banks and non-banks alike.