On January 20, 2017, Donald J. Trump was sworn in as the forty-fifth President of the United States. Regardless of how one feels about Mr. Trump’s election, one thing seems clear—relief is coming to financial institutions from the increased regulatory burdens imposed on them at the federal level during the Obama Administration. On January 23, 2017, President Trump told business leaders he hoped to cut federal regulations by 75% or “maybe more.” However, many state regulatory agencies have vowed to step up their own enforcement in order to fill the “gap” they perceive may be coming at the federal level. While the decreased regulation at the federal level will no doubt be welcome for financial institutions, they will need to be careful to comply with what may become a patchwork of regulation at the state level.
During the campaign, President Trump stated that his Administration would “dismantle” the regulatory framework put in place by the Obama Administration under the Dodd-Frank Act. As then-Candidate Trump stated, “Dodd-Frank has made it impossible for bankers to … (read more…)
The financial services industry is bracing for the formal release by the Consumer Financial Protection Bureau (“CFPB”) of its proposed arbitration rule, which is aimed at reversing the long line of United States Supreme Court precedent holding that the Federal Arbitration Act (“FAA”) trumps class actions. For many, the only questions are when the rule will be issued (answer: after the CFPB at least pretends to sort through the 14,000 comments it received), and, once released, what the effective date will be. The simple answer to the second question is—the rule will cover contracts entered into 210 days after the publication of the final rule in the Federal Register. But this ignores a more fundamental issue of whether the rule will survive the inevitable challenges it will face, some attacking the CFPB as currently constituted, and others involving the particulars of the rule itself. Some of the challenges have already been launched and others will be as soon as the rule is published. The surprise result of the recent national election has improved the chances that those challenges will succeed. Here is a sampling of the hurdles that the CFPB will face in enforcing its new rule.
Is The CFPB Constitutional? First, there is a serious question whether the CFPB, as currently structured, violates the separation of powers doctrine by vesting all of its authority in a single director. Executive branch agencies are generally answerable to the President, and must submit their regulations to the Office of Management and Budget in the Executive Office of the President for review before issuing them. Independent regulatory agencies generally are headed by a bipartisan commission, whose members are appointed to specific terms by the President, and confirmed by Congress. By contrast, the CFPB’s Director—who has final say in all rulemaking and enforcement actions—serves a fixed five-year term and can be removed by the President only for cause. Likewise, the Director is not subject to Congressional scrutiny through the appropriations process because of the CFPB’s peculiar funding provisions in its enabling statute, the Dodd-Frank Act. The CFPB’s budget is paid from the Federal Reserve System’s operating expenses, and Congress is prohibited from reviewing the Director’s budget submission to the Federal Reserve. No other federal agency is funded in such attenuated fashion.
There are already three separate lawsuits winding their way through the federal courts that raise constitutional challenges to the CFPB. One of the first was brought in 2012 by State National Bank of Big Spring, Texas, in the United States District Court for the District of … (read more…)