Most regulatory actions taken by consumer bureau between 2012-20 ‘ratified’ in wake of Supreme Court decision

Most regulatory actions taken from 2012 through the middle of 2020 by the consumer financial protection agency were ratified by the agency Tuesday in response to a Supreme Court decision last week declaring the agency’s structure unconstitutional but leaving the agency in place to operate.

The ratification notice issued by the Consumer Financial Protection Bureau (CFPB), the agency said, “provides the financial marketplace with certainty that the rules are valid” in light of last week’s Supreme Court decision.

On June 29, the high court ruled in Seila Law LLC v. CFPB that the president may remove the CFPB director at will rather than “for cause” as outlined in the law establishing the bureau. The court ruled 5-4 that Congress overstepped the Constitution in 2010 in creating the CFPB and placing it under the control of a single director, free from White House political direction. Congress, attempting to give the bureau a buffer from political influence, said the director could only be removed by the president for “inefficiency, neglect of duty, or malfeasance in office.”

But the court, in an opinion penned by Chief Justice John Roberts, said the agency’s director was unaccountable to the executive branch, creating an unconstitutional reduction of presidential power. “The CFPB’s single-director structure contravenes this carefully calibrated system by vesting significant governmental power in the hands of a single individual accountable to no one,” Roberts wrote.

“The Bureau is taking action to ensure that consumers and market participants understand that the same rules continue to govern the consumer financial marketplace,” said CFPB Director Kathleen L. Kraninger.

In its notice (to be published in the Federal Register), the bureau asserted that “under established case law, any agency may, through ratification, ‘purge any residual taint or prejudice left over from’ a potential defect in a prior governmental action.” The bureau stated that issuing the ratification was done “out of an abundance of caution, and this ratification is not a statement that the Ratified Actions would have been invalid absent this ratification.”

Perhaps ominously, however, the notice states that the ratification is effective for “the large majority of the Bureau’s existing regulations, as well as certain other actions.”

For example, the bureau notice states that the July 2017 rule titled “Arbitration Agreements” is not within the scope of the ratification. The agency noted that, prior to the compliance date of that rule, a joint resolution under the Congressional Review Act was enacted that “disapproves the rule” and provides that the “rule shall have no force or effect.”

The bureau also noted that the November 2017 payday lending rule (the “Payday, Vehicle Title, and Certain High-Cost Installment Loans”) is not ratified under the scope of the announcement. “The Bureau has revoked the mandatory underwriting provisions of that rule. The Bureau has separately ratified the payment provisions of the rule. The entire rule is subject to litigation and its compliance date has been stayed.”

The agency also noted that it is considering whether ratifications of “certain other legally significant actions by the Bureau” – such as certain pending enforcement actions – are appropriate. “Where that is the case, the Bureau is making such ratifications separately. On the other hand, the Bureau does not believe that it is necessary for this ratification to include various previous Bureau actions that have no legal consequences for the public, or enforcement actions that have been finally resolved,” the agency stated.

Consumer Financial Protection Bureau Ratifies Prior Regulatory Actions