CFPB Rulemaking Bound by Cost-Benefit Mandates, Hensarling Says

By Chris Bruce

Oct. 19 — A recent federal appeals court ruling means the Consumer Financial Protection Bureau must abide by executive orders, including mandates for costs-benefit analysis in rulemaking, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) told CFPB Director Richard Cordray.

Hensarling's letter said the Oct. 11 decision by the U.S. Court of Appeals for the District of Columbia Circuit means that the CFPB, created by Congress as an independent regulator, is an executive branch agency, subject to executive orders.

He asked Cordray for assurances by Oct. 26 that the CFPB would “comply in full” with several executive orders before issuing any future final rules, “including rules governing arbitration agreements; payday, vehicle title, and installment loans; and debt collection.”

The CFPB did not immediately respond to a request for comment on Hensarling's letter.

Any such mandates applied to CFPB rulemaking could slow efforts on big-ticket projects such as the CFPB's proposal to limit certain mandatory arbitration clauses in consumer financial services contracts.

D.C. Circuit Ruling

At issue is an Oct. 11 ruling by the U.S. Court of Appeals for the District of Columbia Circuit in favor of PHH Corp., a Mount Laurel, N.J., mortgage company that challenged a $109 million disgorgement order by CFPB's Cordray in June of last year.

Two judges on the three-judge panel that heard the case said the CFPB’s single-director structure violates the U.S. Constitution. They crafted a narrow remedy that ensures the CFPB's continued operation, but “as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury.”

As a result, Hensarling told Cordray, executive orders that apply to executive agencies “apply in full to the CFPB.”

Public Citizen Oct. 19 said the CFPB should reject Hensarling's call for a review of CFPB rules by the U.S. Office of Information and Regulatory Affairs (OIRA).

“The CFPB’s time to petition for review of the D.C. Circuit’s ruling has not yet expired, and accordingly it makes little sense for OIRA to review CFPB rules when the court decision is not final and could be reversed,” Regulatory Policy Advocate Amit Narang said in a statement. “Even if the decision were upheld, current law specifically identifies the CFPB as an independent agency that is excluded from the executive order requiring OIRA review. That law was not altered by the court’s opinion.”

Electoral Impact Possible

Although the full implications of the D.C. Circuit's ruling are still being thought through, Hensarling's letter underscores what could be a growing interplay between the judicial process and the political process.

The D.C. Circuit's remedy was to strike a provision of Dodd-Frank that allowed the president to remove the CFPB director “for cause.” That leaves whoever is in the White House free to discharge Cordray at any time, raising the stakes for the agency as the November election approaches.

“In practical terms, this means the new President can pick his or her own person to run the CFPB just like he or she picks a new Attorney General or a new HUD Secretary,” Cowen & Co. analyst Jaret Seiberg said in commentary on the D.C. Circuit's decision. “It has become a political appointment.”

The CFPB is widely expected to appeal the decision. The agency recently said in a separate case that it expects to prevail on appeal.

Should the agency file an appeal—either for review by the D.C. Circuit's full complement of judges, or by the U.S. Supreme Court—the deadline for either petition falls after the Nov. 8 election, again raising the possibility that further action could be driven by the next administration's view of the case.

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To contact the editor responsible for this story: Mike Ferullo at

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