CFPB opponents: Mortgage regulations may be declared unconstitutional

By Gretchen Wegrich

As predicted, opponents of the Consumer Financial Protection Bureau (CFPB) presented legislation this week with the intention of preventing the CFPB from upholding regulations without a constitutionally confirmed program director.

Additionally, the legislation would stop the CFPB from drawing on Federal Reserve funding in order to enforce regulations requiring approval from the CFPB director.

The new legislation follows last week’s controversial appellate court decision that declared invalid several National Labor Relations Board (NLRB) appointments made by President Obama during the Senate recess.

Legal analysts immediately warned that the NLRB decision made by the U.S. Court of Appeals for the D.C. Circuit was a red flag indicating that opponents of the CFPB now had a precedent on which to challenge the consumer agency over President Obama’s recess appointment of CFPB director Richard Cordray.

The response was quick; several US Senators, including John Cornyn, R-Texas; Mike Johanns, R-Neb.; and Lamar Alexander, R-Tenn., immediately drafted legislation challenging the constitutionality of the new CFPB director.

Named The Restoring the Constitutional Balance of Power Act of 2013, the bill intends to use the D.C. Circuit Court’s decision regarding the NRLB to dismantle Cordray’s authority at the CFPB and stop all regulations and decisions he made regarding mortgage and financial servicing rules (including the definition of a Qualified Mortgage) from taking effect.

Senator Cornyn explained the proposed law in a press conference, stating, “The Restoring the Constituional Balance of Power Act of 2013 prohibits NLRB from undertaking or enforcing any decisions that required the approval of a quorum of board members since the President’s overreach.”

He added, “The legislation also blocks CFPB’s next transfer of funds from the Federal Reserve to carry out any actions that require the approval of a director.”

Legal analysts say it’s too soon to tell how a judicial undermining of Cordray’s appointment as program director would inhibit the CFPB’s power; the agency was created by the Dodd-Frank Act and therefore falls under the Act’s legal umbrella.

“I think some of the CFPB rules may be valid even under an acting director, and some of them may not be valid,” predicted Alan Kaplinsky, a partner at Ballard Spahr, a nationwide legal firm. 

Kaplinsky added, “We are still researching what the impact of the ruling would be.”

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.