As we previously reported, a three-judge panel of the US Court of Appeals for the DC Circuit held in October 2016 that the Consumer Financial Protection Bureau (CFPB) was unconstitutionally structured in that too much authority is concentrated in its unitary director. In turn, the panel struck language in the Dodd-Frank Wall Street Reform and Consumer Protection Act that would only permit the US president to remove the CFPB director for cause—thereby permitting the president to remove the director without cause as he would any non-career “political” appointee.

The CFPB subsequently petitioned for en banc review; the court has granted that petition for review and ordered further briefing and a hearing before the full DC Circuit on May 24, 2017.

In the meantime, the October panel decision has been vacated, which means that (i) the CFPB will continue operating as it did before the October decision was filed and (ii) the CFPB director will continue, for the time being, to be removable only for “cause.”

The Office of the Comptroller of the Currency’s (OCC’s) recent announcement that it will receive and process applications for financial technology (fintech) charters is attracting negative attention from diverse sectors of the public arena.

On January 9, Senators Sherrod Brown (D-OH and the ranking member of the US Senate Committee on Banking, Housing, and Urban Affairs) and Jeff Merkley (D-OR) wrote to Comptroller of the Currency Thomas Curry questioning whether the OCC has the authority to grant charters to fintech firms. The senators’ letter notes, among other things, that the authority granted by Congress to the OCC to charter special-purpose national banks is very specific and that the OCC’s proposed activity may exceed what is allowed under the National Bank Act.

As the incoming administration of President-elect Donald J. Trump prepares to roll back federal regulations impacting a wide variety of industries, the battleground will not just be in Washington, DC—it may emerge in the states.

During the Obama administration, state attorneys general—mostly Republican—have used their litigation authority to challenge federal regulations and executive orders that were designed to implement what could not be enacted in the US Congress. With the goal of stopping what they describe as federal government overreach, these attorneys general challenged the Affordable Care Act (Obamacare), Environmental Protection Agency (EPA) clean power rules, Obama’s executive order on immigration, and climate change regulations, among many other federal regulatory activities. In fact, just this week, 18 states filed a lawsuit challenging federal environmental regulations, specifically “overreaching new federal rules that broadly expand the definition of ‘critical’ habitat for endangered and threatened species.”

The Consumer Financial Protection Bureau (CFPB) has filed a petition for rehearing en banc asking the full US Court of Appeals for the District of Columbia Circuit to overturn a court panel’s decision in the much-watched PHH Corporation v. CFPB. In this case, the court held that the CFPB’s structure is unconstitutional and that its director is accordingly an Executive Branch appointee who serves at the president’s pleasure and not for a term of years subject to removal only for cause (as written in the authorizing language of Dodd-Frank, PHH Corporation v. CFPB).

As we have previously discussed, the court concluded that Congress unconstitutionally delegated Executive Branch power when it created an independent agency and authorized it to be headed by a unitary director subject to removal only for cause. However, the court found that the constitutional defect is cured, and the CFPB may continue operating by striking the “for cause” provision, thus subjecting the president to remove the director at will. But for this one change, the court held that the CFPB may continue operating as it has done. 

The election of Donald J. Trump as president and continued Republican control of both the US Senate and House of Representatives may provide the new president the opportunity to immediately remake the Consumer Financial Protection Bureau (CFPB) after he takes office in January 2017.

When a panel of the US Court of Appeals for the District of Columbia Circuit held in October that the structure of the CFPB is unconstitutional, we wrote that the flaw was cured by converting the CFPB’s director from a position that may only be terminated “for cause” to one where the director, as with other administration appointees, serves at the president’s pleasure (see PHH Corporation v. CFPB).

The federal bank and credit union regulatory agencies (including the Consumer Financial Protection Bureau (CFPB)), acting through the Federal Financial Institutions Examination Council (FFIEC), have substantially revised the Uniform Interagency Consumer Compliance Rating System (Rating System). The new Rating System substantially reconfigures the legacy ratings system for consumer compliance, which is a standardized system used by federal and state bank supervisors to assess and rate the level and quality of a regulated financial institution’s compliance with consumer laws and regulations (not including the Community Reinvestment Act, which is separately reviewed and evaluated).

The new Ratings System, which was previously proposed for comment in May 2016, takes effect on March 31, 2017. It will apply to all banks and credit unions that are federally regulated as well as all firms that are subject to CFPB regulation and supervision. The Rating System also will be used by state bank regulatory agencies, consistent with individual states’ examination and supervision policies and practices.

As National Cybersecurity Awareness Month comes to a close, the federal financial regulators have been releasing guidance related to cybersecurity and financial technology (FinTech) issues faster than a teen can complain about slow Wi-Fi.

In the last 10 days, there have been a number of notable releases:

  • The Board of Governors of the Federal Reserve System (Federal Reserve Board), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) released a joint advance notice of proposed rulemaking titled Enhanced Cyber Risk Management Standards that would apply to large supervised financial institutions and their service providers.
  • The Federal Reserve Board’s Secure Payments Task Force identified its key priorities for addressing secure payments: payment identity management, information sharing to mitigate payments risk and fraud, and data protection. The task force has invited industry feedback on these priorities through November 8.

In the closely watched case PHH Corporation v. Consumer Financial Protection Bureau, a panel of the US Court of Appeals for the District of Columbia Circuit has held that the Consumer Financial Protection Bureau’s (CFPB’s) structure is unconstitutional but that the constitutional flaw is remedied simply by striking the CFPB provision that authorizes the statute restricting the US president’s power to remove its director except “for cause.” In this manner, the court has allowed the CFPB to continue operating as it has done with minimal real changes: if the decision ultimately becomes final, the CFPB’s director will become subject to removal from office by and the direction of the president, as is the case with any other Executive Branch agency, such as the US Department of Justice or Department of the Treasury.

Having determined that the CFPB may continue operating, the court also addressed the appeal’s merits and remanded the case to the CFPB director for further action consistent with the opinion. The CFPB may seek review of the decision by the full DC Circuit or from the US Supreme Court.

On October 7, attorneys general (all Democrats) from New York, Connecticut, the District of Columbia, Maryland, Massachusetts, New Hampshire, Pennsylvania, and Vermont filed a comment letter (Comment Letter) with the Consumer Financial Protection Bureau (CFPB) supporting proposed rules concerning Payday, Vehicle Title, and Certain High-Cost Installment Loans (Proposed Rule), to be codified at 12 C.F.R. §1041.

The Comment Letter focuses primarily on the importance of state attorneys general’s independent authority as separate sovereigns to enforce state laws that may be more stringent than federal law. The Comment Letter points to the preamble of the Proposed Rule as evidence of the CFPB’s intent to treat its proposal as a floor, not a ceiling:

On October 5, the Consumer Financial Protection Bureau (CFPB) released its final rule (Final Rule) extending an array of new substantive restrictions, upfront and ongoing disclosure obligations, and government reporting requirements on prepaid cards and a range of electronic non-bank accounts, commonly referred to as “digital wallets.”

The Final Rule makes a number of changes to both Regulation E (which implements the Electronic Funds Transfer Act) and the credit card rules that are part of Regulation Z (which implements the Truth in Lending Act). The Final Rule takes effect on October 1, 2017, with certain provisions phased in over time, and the reporting requirement for issuers is delayed until October 1, 2018.