This is not a blog post about how to empty your backyard of unwanted exotic pets.

A recent US Court of Appeals decision out of the Seventh Circuit, Builders Bank v. Federal Deposit Insurance Corporation, is attracting attention because it appears to say that a bank that does not like its supervisory—or CAMELS, which stands for Capital, Assets, Management, Earnings, Liquidity, and Sensitivity to market risk—rating may sue the federal banking agency to challenge the rating. Given the central status and impact of the supervisory CAMELS ratings system in the pantheon of bank regulation, the ability of a bank to challenge a bad CAMELS rating in court might be a dream come true for some. We have read the decision, however, and for the time being, to borrow a phrase from the comedy TV show, we will “curb our enthusiasm” over the “right” conferred by this decision.

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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).

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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.

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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:

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In a significant decision, on August 31, the US District Court for the Central District of California held that a tribal bank originating loans for a non-bank lender was not the “true lender”—making the loans subject to state usury limits.

Background

In December 2013, the Consumer Financial Protection Bureau (CFPB) commenced litigation against CashCall (a payday lender in a partnership with a tribal bank) and other defendants, claiming that they had violated the federal law prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) for financial services providers by servicing and collecting on loans that were wholly or partially void or uncollectible under state law.

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On August 12, the US Drug Enforcement Administration (DEA) announced its rejection of two petitions seeking to reclassify marijuana as a less-regulated Schedule II substance under the federal Controlled Substances Act (CSA). This means that the drug’s federal classification as an illegal Schedule I substance with a “high potential for abuse” and “no currently accepted medical use” will be left in place (read our August 15 LawFlash for more detail on the DEA’s decision).

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Starting August 1, violations of financial regulations will come with higher civil money penalties (CMPs). The CMP increases are in response to the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 (the Act). The Act requires Executive Branch and independent agencies (Agencies) to make annual adjustments for inflation to CMP dollar amounts, as well as an initial “catch-up” adjustment based on a formula set forth in the Act. Although the Act was part of the contentious budget bill that was passed on October 30, 2015 (and that avoided a government shutdown), the Act did not receive much independent coverage, and the increases may be unexpected to businesses that are potentially subject to the increased penalties.

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The Financial Crimes Enforcement Network (FinCEN), the bureau of the US Department of the Treasury responsible for oversight and enforcement of the Bank Secrecy Act (BSA), has issued an interim final rule (Rule) that significantly increases the statutory penalties for various violations of the BSA and its applicable regulations. Prior to the Rule, FinCEN had not increased its civil money penalty (CMP) amounts for more than a decade, and in some cases, for several decades.

The increases are being issued in response to the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 (the Act). The Act requires Executive Branch and independent agencies to make annual adjustments for inflation to CMP dollar amounts, as well as an initial “catch-up” adjustment based on a formula set forth in the Act. Although the Act was part of the contentious budget bill that was passed in the early morning of October 30, 2015, and avoided a government shutdown, the Act did not receive much independent coverage, and the increases may be unexpected to some businesses subject to the BSA.

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In a clear and concise decision, the US District Court for the District of Columbia has ruled that the Consumer Financial Protection Bureau (CFPB) lacked the statutory authority to issue a Civil Investigative Demand (CID) to the Accrediting Council for Independent Colleges and Schools (ACICS), an accreditor of for-profit colleges. In Judge Richard Leon’s opinion in Consumer Financial Protection Bureau vs. Accrediting Council for Independent Colleges and Schools, he termed the CFPB’s action “a bridge too far.”

In August 2015, the CFPB issued a CID to ACICS with the stated purpose of determining whether ACICS had engaged in “unfair, deceptive or abusive acts and practices” (UDAAP). However, the CFPB’s supervisory and enforcement authority with respect to UDAAP is limited by statute to a “covered person or service provider” and only in connection with a transaction with a consumer for “consumer financial products or services.”

Because ACICS does not meet the definition of a “covered person,” the CFPB argued that the CFPB’s authority to investigate the consumer lending practices of schools accredited by ACICS grants it the necessarily authority to investigate whether ACICS has engaged in violations of the law in accrediting those schools.

This, the district court held, was “a bridge too far.” In addition, Judge Leon looked to the demands made in the CID and noted that the information sought far exceeded what could reasonably be required for the CFPB to determine whether ACICS’s conduct furthered or otherwise assisted and facilitated the schools’ conduct. Accordingly, he denied the CFPB’s motion to enforce its CID and dismissed the action.

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In a spirited oral argument on April 12, a panel of the US Court of Appeals for the DC Circuit questioned the constitutionality of the Consumer Financial Protection Bureau’s (CFPB’s) governance structure. Specifically, the court is examining the decision by the US Congress to concentrate the power of this independent federal agency in a single director—and then largely insulate that director not only from the checks and balances of Congress and the courts, but also in large part from review and control by the President.

The oral argument was made in a case brought by mortgage lender PHH Corp., appealing a CFPB administrative order that charged it with alleged illegal kickbacks under the Real Estate Settlement Procedures Act (RESPA). An administrative law judge appointed by CFPB Director Richard Cordray had initially imposed a penalty of $6.4 million. When both PHH and the CFPB staff appealed, Director Cordray sat as the appellate officer and increased the penalty by over 1,600% to $109 million.

PHH then filed an appeal of Director Cordray’s order with the US Court of Appeals, as was its right under the Dodd-Frank Act. It marked the first challenge to a CFPB administrative action since the agency’s creation in 2011.

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