CFPB Gets its Director. Now What?

The confirmation of Consumer Financial Protection Bureau Richard Cordray as bureau director has been one of the most hotly contested, strongly debated topics in Washington this year.

From the director’s initial appointment in January during what the Obama Administration interpreted as a congressional recess, to a following lawsuit challenging the recess appointments made by the president, those governed by the agency have been on a wild ride—especially since many of the rules made and enforced by the agency were called into question when the agency lacked a confirmed director.

 

For lenders, the Senate’s agreement this week means a sudden certainty about the CFPB and its staying power. It also means a whole lot of new rules are coming down the pike. As Bloomberg News put it following the announcement, the bureau is “unleashed.”

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The rules

Mandated by Dodd-Frank, the CFPB has been tasked with making new rules—including dozens of mortgage rules—and enforcing them. “The CFPB and most regulated entities had already been behaving as though the Director appointment issue would be resolved, and now it has been,” says Chris Willis, partner with Ballard Spahr.

Many of the rules do not apply to reverse mortgage lenders specifically, but will change the lending landscape from assessing borrowers’ ability to repay their loans, disclosing information about the loans, compensating loan originators and servicing mortgages once they are closed. Since its fledgling launch, the agency has spelled out the rules and has set deadlines—many of which fall in January 2014—for them. It has changed and tweaked the rules as early as last week.

The CFPB has also communicated to the lending community as to how it may prepare for mortgage exams, including a few tips to avoid potential enforcement actions.

“A party may proactively self-police for potential violations, promptly self-report to the Bureau when it identifies potential violations, quickly and completely remediate the harm resulting from violations, and affirmatively cooperate with any Bureau investigation above and beyond what is required,” the bureau wrote in a bulletin in June. In other words, lenders can take a certain approach that will aid in the enforcement process, and possibly lead to a more favorable outcome.

“If a party meaningfully engages in these activities, which this bulletin refers to collectively as ‘responsible conduct,’ it may favorably affect the ultimate resolution of a Bureau enforcement investigation,” the CFPB wrote.

The reception

Many organizations applauded the decision to confirm Cordray as it provides a final answer to a long-unanswered questions, yet maintain caution about working with an agency with unprecedented power.

“Given the reach and influence this agency has on both businesses and consumers, it is important that we have stability and consistency in its highest ranks,” said Mortgage Bankers Association President and CEO David Stevens following the Senate agreement. “We have not always agreed on the final outcome of CFPB rulemakings, and there remain a number of items related to the mortgage process that we will be working to address, but we are confident that we can make progress toward finding solutions regarding these issues.”

 

The American Bankers Association stressed the work that the CFPB has yet to do with respect to the mortgage market, expressing hope that it does so in a calculated and reasonable way.

“The CFPB has several major issues before it, including the implementation of its Qualified Mortgage rule, which will determine the future of the mortgage market in this country,” said ABA President and CEO Frank Keating. “As this relatively new bureau continues to form, we are hopeful that Director Cordray and the CFPB’s staff will show a continued willingness to work with our industry to ensure that mortgage and other credit products remain available to all creditworthy borrowers.”

What now?

With rules ready to go live in January, lenders and mortgage industry stakeholders are best served to gear up for the CFPB’s uninhibited reign.

“Certainly, the controversy surrounding Cordray’s appointment for the past 18 months did not appear to hinder the CFPB’s pursuit of a vigorous agenda of rulemakings, data collection, examinations, and enforcement actions,” say K&L Gates attorneys Kristie Kully and Nathan Pysno.

With January and new mortgage rules fast approaching, lenders should prepare for compliance, following the CFPB’s many instructions, recommendations and reports.

“Certainly I don’t think there is any reason to doubt that the CFPB’s mortgage rules will go into effect as announced,” Willis says. “This compromise removes a doubt over the agency, but I don’t think it will change how entities in the industry have generally been conducting themselves.”

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.  

Written by Elizabeth Ecker

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  • While Director Cordray’s confirmation by the Senate is clear for his taking his office currently, it is unclear that anything which occurred before Senate confirmation is not subject to challenge.

    All actions of the CFPB which required a seated Director and which occurred before the Senate confirmation are still at risk. There is none known power given to the newly confirmed Director which would permit him to ratify the actions of the CFPB which took place before the Senate confirmation.

    The argument is quite strong since a federal Appeals court has found that others who supposedly took office during the specific recess period in question were not authorized to do so under the Constitution. This argument is even stronger today since the Senate in session during that unconstitutional usurpation of power by Director Cordray occurred (January 4, 2012) under a whole different session of the Congress. The unconstitutional usurpation took place during the 112th session of Congress while the confirmation was made by the Senate in its 113th Session. That simply means a federal Congressional election occurred between the two dates. That complicates the issue for Director Cordray and the Obama Administration.

    Let us hope the challenge is made quickly so that any resulting turmoil can be mitigated.

    (The opinions expressed may not necessarily be those of RMS or its affiliates.)

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