There is a major battle that is presently gearing up. This battle is over whether or not the Consumer Financial Protection Bureau’s level of power as an official agency of the United States government. The battle lines are being drawn up and will be looked over by the DC Circuit Court of Appeals in April.
The origins of this battle go back to when the Director of the CFPB Richard Cordray made a decision that overruled a judge’s decision. This decision came against a lending company based out of New Jersey, called PHH Corp. The decision handed down by the judge was for a $6 million fine against the lender for taking illegal “kickbacks” from operations that insure mortgages. These kickbacks led to a higher cost for people borrowing money.
The lender protested the official decision and winded up being costly. Cordray stepped in and made a demand that PHH Corp. pay about 18 times more than the judge called for; a fine of $109 million. This expensive penalty was for the lender making illegal gains and making continuous violations of the law via monthly payments that were made from reinsurance contracts. PHH originally argued that the judge’s decision was what could be construed as an “… overly aggressive interpretation of an old law.” Cordray took his opportunity to crack down on this case in order to prove that he was serious about his organizations tough stance, after years of offering sub-par protection to American consumers.
The CFPB made an argument that the illegal actions of PHH Corp. had a direct effect on the rising costs that consumers must pay. This is because the actions referred new mortgage borrowers to insurance companies and then put pressure on those consumers to purchase reinsurance from PHH affiliates. This led to a 40 percent increase on insurance premiums, which were given back to PHH in the form of kickbacks. It is estimated that PHH raked in hundreds of millions of dollars via the reinsurance scam and that this led to increased prices for consumers to pay for years to come.
The PHH, in a court filing, argued that, “This brazen disregard for judicial authority, agency precedent and fair notice is a symptom of the larger constitutional problems. The CFPB places legislative, executive and judicial power all ‘in the same hands’ of a single person — what James Madison called ‘the very definition of tyranny.’”
PHH’s above statement makes a reference to the single-director structure of the CFPB. This structure gives a heck of a lot of power directly to Cordray and allows him to make huge, fast and very extensive decisions against financial providers. Isaac Boltansky, an analyst from Compass Point Research and Trading told the Wall Street Journal, “The PHH lawsuit is the first serious test of the CFPB’s enforcement authority,” said Isaac Boltansky, a Compass Point Research & Trading analyst, in an interview with WSJ. “If the court rules against the bureau, the calls for a change to its leadership structure will intensify.”
For its part, the Consumer Financial Protection Bureau is adamant about how legitimate its actions were by referencing their compliance with the Dodd-Frank law of 2010, and how effective the organization has been at getting resolutions to over 700,000 consumer complaints since it first began. The bureau also made it well know that they have doled out over $11 billion in financial compensation to 25 million American consumers. But does the end justify the means? Can the bureau get a free ride just because it has some numbers to throw around? Or will American business owners and consumers get fed up with the heavy handed techniques used by this organization? Only time will tell…
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