Nicknamed “Obama’s Watchdog,” the Consumer Financial Protection Bureau (CFBP) has become a lightning rod of contention for lobbyists in the financial industry. Fear and panic has surged through the veins of our country’s financiers as the CFPB begins to construct a more transparent and honest financial industry.
The State National Bank of Big Spring, Tex., the Competitive Enterprise Institute and the 60 Plus Association (a conservative advocacy group for seniors), have filed a lawsuit in which they claim the FCPB is in direct violation of the separation of powers and is, therefore, unconstitutional. The group also alleges that President Obama’s appointment of CFPB Director Richard Cordray is unconstitutional because it took place during official Senate recess. Lastly, the lawsuit claims that the Financial Stability Oversight Council is also in violation of the constitution because of its sweeping, unchecked authority to determine which banks are subject to increased government oversight.
The CFPB, established under the Dodd-Frank Act, was founded to make the financial market less of a minefield for consumers by creating an oversight authority for the previously unregulated financial industry. Several new developments stemming from the act include a website revealing detailed consumer complaints of financial institution and a mortgage rule which creates a baseline for what types of loans are considered abusive, unfair or deceptive.
Proponents of the act point out that the State National Bank is so small that it is essentially unaffected by the agency’s authority. The bank outsources its mortgage loans to larger banks, and its portfolio primarily consists of commercial loans (not the focus of the CFPB). Only 2.3 percent of the bank’s $30 million catalog consists of residential loans, leaving the bank essentially unscathed.
The lawsuit against Dodd-Frank comes at an interesting time; juxtaposed with the success of several overdraft fee lawsuits in which numerous banks, including Bank of America and J.P Morgan Chase, were charged with re-organizing charges from largest to smallest in order to capitalize profits from overdraft fees. The country is still recovering from the subprime mortgage crisis, which was a direct result of an unregulated banking industry; a crisis situation in which the CFPB was established to prevent.
It should also be noted that representation of the plaintiffs are former white house counsel, suggesting more of a political agenda on behalf of those who profit from unregulated banking practices rather than a pursuit of constitutional justice. The argument of State National and the two conservative advocacy groups primarily the unchecked authority of the agency and the unelected appointment of Cordray, yet most federal agency positions are unelected and the President has the authority to replace Cordray, if necessary. The actions of Cordray are public record under the Freedom of Information Act and, consequently, under the scrutiny of the Congressional and the Executive branches, unlike the authority previously held by the financial leaders responsible for subprime lending practices.
The purpose of the CFPB is to give consumers a little bit of insight and safety when handling their personal finances. Authority to regulate residential lending only encourages banks to create better mortgage lending practices and but a stop to reckless lending for profit’s sake.
Although it was expected that lawsuits would be filed immediately following the passage of Dodd-Frank, very few have been filed to date.