CFPB Ratifies its Pre-Seila Activity—But What Does That Mean?

After the U.S. Supreme Court dropped its Seila decision, it left many people and businesses on all sides of the aisle scratching their heads. All of the sudden, a million questions popped up. In an effort to provide some clarity, the Consumer Financial Protection Bureau (CFPB) issued a ratification of its prior actions. The ratification is scheduled to be published in the Federal Register tomorrow.

In last week’s decision,  found that the Consumer Financial Protection Bureau’s (CFPB) structure—specifically, the for-cause only removal of the director—was unconstitutional as it violates the Constitution’s separation of powers. The majority opinion severed that portion of the statute that created the CFPB, stated that the director should be removable at will by the president, and sent the case back to the circuit court of appeals to determine whether the civil investigation demand that prompted the Seila case was validly ratified.

With its ratification, the CFPB attempts “[t]o resolve any possible uncertainty” caused by the Seila decision. The ratification encompasses, among a list of other items:

• Documents published by the CFPB in the “Rules and Regulations” category of the Federal Register, with the exception of the CPFB’s arbitration rule, which Congress killed through the utilization of the Congressional Review Act, and the payday lending rule, which the Bureau pulled back on and, just the other day, finalized the rescision of the mandatory underwriting requirement.
• Consumer information publications issued by the CFPB.
• Notices titled “Fair Credit Reporting Act Disclosures”

The CFPB is still considering whether it should ratify other actions, such as pending enforcement actions.

The ratification notice elaborates:

Based on the Director’s evaluation of the Ratified Actions, it is the Director’s considered judgment that they should be ratified. This decision is reinforced by the fact that, based on the Bureau’s experience as a regulator of markets for consumer financial products and services, the Director is acutely aware that many of the Ratified Actions have engendered significant reliance interests. Consumers, the business community, State and local governments, and other individuals and entities have all relied upon the validity of the Ratified Actions in organizing their activities. This ratification secures those existing reliance interests by avoiding doubt as to the validity of the actions following the Court’s decision in Seila Law.

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insideARM Perspective

While the Bureau’s ratification certainly makes its position loud and clear, it’s still difficult to tell what, exactly, this all means. For example, Director Kraninger chose not to ratify the CFPB’s old arbitration rule, but that rule was created and passed—and subsequently killed—prior to her directorship. 

To help us understand the situation a little better, insideARM reached out to Joann Needleman, leader of Clark Hill's Consumer Financial Services Regulatory & Compliance group, for some insight. Needleman states:

It’s still unclear whether ratification is the magic fix to the actions taken by the Director, as well as her predecessors who were unconstitutionally insulated. The Supreme Court in Seila intentionally stopped short of articulating a specific remedy. Cordray’s ratification of his prior actions taken upon his confirmation by the Senate after his recession appointment was held to be unconstitutional and was not immediately challenged. The Supreme Court has held that for ratification to be effective, the party ratifying must have been able to do the act ratified at the time the act was done. That simply is not the circumstances we have here.

Because of this uncertain, parties who are subject to pending enforcement actions will be challenging the Director’s current statements on ratification. Similarly, consumer advocates who oppose the Bureau’s rulemaking activities for payday and debt collection will make the same arguments. For payday, advocates will argue that Kraninger had no constitutional authority to pull back the ability to repay provision in the payday rule during its implementation period. For debt collection, the challenge could be that she had no authority to approve the various provision of the NPR, especially in the areas of call caps and electronic communications.

Sounds like only time will tell how all of this shakes out.