Director Warns of "Potentially Catastrophic Consequences" for Challenging CFPB Rules
Commentary by Steven Lofchie
CFPB Director Rohit Chopra praised the mortgage borrowing standards implemented by the CFPB following the 2008 financial crisis. He claimed that recent court cases raising questions about the legitimacy of the CFPB's regulations were "destabilizing" to the housing system.
In remarks before The Mortgage Collaborative National Conference, Mr. Chopra recounted the Congressional response to the bank failure of IndyMac in 2008, which he said included shutting down the Office of Thrift Supervision and "stripp[ing] authorities" from a number of banking regulators that Congress transferred to the CFPB. Mr. Chopra said that the CFPB established new standards for evaluating borrowers, and that many of the regulators responsible for mortgage securitization-related standards "largely duplicated" the CFPB's standards set forth under its qualified mortgage rule. Mr. Chopra stated that the CFPB has since implemented other mortgage rules, the details of which are now "built into the fabric" of the U.S. mortgage system.
Mr. Chopra cited recent court cases challenging the validity of CFPB regulations, based on an argument that the CFPB's funding mechanism is unconstitutional because it is funded outside of annual appropriations bills. Mr. Chopra maintained that the CFPB is "not the only agency that is funded this way." He concluded by referring to a brief recently filed with the Supreme Court in which the Mortgage Bankers Association argued that questioning CFPB rules could have "potentially catastrophic consequences on the mortgage and real-estate market."
Commentary
It is notable that Mr. Chopra's remarks were issued contemporaneously with a federal court ruling that the CFPB overstepped its authority. Mr. Chopra's argument comes down to the ends justify the means. He apparently believes that the CFPB is doing good things, and, therefore, it does not matter whether the agency operates in a legitimate manner or is funded through Constitutional means.
As a starting matter, government officials need to operate within their statutory confines. Contrary to Mr. Chopra's trepidations, the world will continue if the CFPB's funding mechanism is struck down. Congress can provide funding through the traditional means, with approval of both houses, rather than through a back door. Likewise, Congress can ratify the rules that the CFPB has adopted - or not - if those rules do not have some level of broad or majority support. Mr. Chopra ought not to attempt to intimidate the courts with the notion that they may bring down the U.S. economy if they find something not in accordance with the Constitution in the way that the CFPB is funded.
Should the CFPB lose its case, then Mr. Chopra will need to go before Congress and ask for funding in the very same manner that other federal agencies do.
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The U.S. Court of Appeals for the Fifth Circuit ruled that the CFPB's independent funding process which runs through the Federal Reserve rather than through congressional appropriations violates the Constitution's separation of powers clause.