MBA’s president calls CFPB’s director out for regulatory overreach

The Mortgage Bankers Association’s President Bob Broeksmit took aim at the Consumer Financial Protection Bureau on Monday, calling its independent directorship a key example of “regulatory overreach.”

“The main threat we see is coming from the CFPB, where the single director can act as judge, jury, and executioner, all in one,” said Broeksmit during MBA’s annual conference in Nashville.

Ting Shen/Bloomberg

Broeksmit called for the CFPB to establish clear and consistent standards, and criticized the bureau for “circumventing the rulemaking process.” 

The CFPB did not immediately respond to a request for comment. 

MBA’s president said the government watchdog has evaded the established status quo of rulemaking by not always providing a notice and commentary period for stakeholders. His comments come in the wake of a court decision that lawyers have said could open all the bureau’s past actions up to legal challenges.

Broeksmit noted that the CFPB is “also enforcing novel and untested legal theories, making it very difficult for firms to understand their legal obligations,” thereby exacting a high cost on markets, which gets passed on to consumers. 

However, he also said that the industry is willing to parley with the CFPB.

“Now is no time to make you hire more lawyers to try to understand what the bureau is doing,” he said. ” You need relief and you need certainty. We will work with the bureau and others to ensure they understand the need for clear rules and lower costs to consumers.”

MBA’s president promised to “fight” against bad policies “that have a habit of rearing their ugly head,” and that raise costs instead of lowering them.

The mortgage industry’s main gripe with the CFPB is that it pushes aggressive legal theories in enforcement actions rather than trying to put them into law by a rulemaking process, according to Richard Horn, partner at Garris Horn LLP.

“This is problematic because it’s basically an agency that’s ignoring its own responsibilities and guardrails,” said Horn. ” The Administrative Procedures Act is a guardrail against the CFPB abusing its authorities because if it wants to expand legal theories, it has to give notice and allow for commentary from the public. “

“The CFPB is ignoring the APA and they’re ignoring their responsibilities,” he added.

The bureau has faced multiple legal challenges. In September, the Chamber of Commerce and six trade groups sued the government watchdog alleging that it exceeded its authority in March when it adopted a policy that claimed discrimination on the basis of age, race or sex violates “unfair, deceptive or abusive acts or practices,” or UDAAP. 

Under the new policy, which was announced via a blog, the CFPB sought to look for discrimination in a wide range of noncredit financial products including deposit and checking accounts, payments, prepaid cards, remittances and debt collection practices.

The trade groups alleged the change amounted to a power grab that was “arbitrary” and “capricious,” as well as in violation of the APA.

Meanwhile, last week, a panel of three judges on the U.S. Court of Appeals for the 5th Circuit ruled that the CFPB’s funding source, which comes from the Federal Reserve’s operating budget  violates the Constitution’s separation of powers because it gives the executive branch too much, and the legislative branch too little, control of a federal agency. 

The appeals court decision could have far broader implications, potentially opening all of the agency’s past rules and other actions to legal challenges, said Horn.

He noted that despite pending lawsuits and criticisms from the mortgage industry, the CFPB “will just go on business as usual until they’re reined in by Congress.” 

“I think the only thing that would really rein in the CFPB is a structural change under appropriations and making it a commission.” Horn said.