Wall Street chips away at Dodd-Frank
▶▶Court challenges threaten to eat away at the 2010 Wall Street reforms ▶▶“The financial industry is using all the tools available to resist the regulation”
In 2014 a New Jersey mortgage lender called PHH found itself in trouble with the U.S. Consumer Financial Protection Bureau. An administrative judge at the agency ordered the company to disgorge $6.4 million in ill-gotten gains from an insurance kickback scheme. Later, the CFPB’s director, Richard Cordray, decided that didn’t go far enough. He raised the penalty 17-fold, to $109 million.
Denying any wrongdoing, PHH took its case to the U.S. Court of Appeals for the D.C. Circuit. The result could disrupt the very structure of the CFPB. No decision has yet been made, but in oral arguments on April 12, judges hearing the case raised questions far more consequential than how much, if anything, PHH ought to pay. Although it’s risky to predict a legal result based on comments from the bench, the judges sounded wary of the powers that have been given to the CFPB director.
The agency was created in 2010 by the financial reform law known as Dodd-Frank, which gave the CFPB authority to police credit cards, debt collection, home and payday loans, and other areas where consumers interact with the financial system. Under Cordray’s leadership, the CFPB has imposed billions of dollars in penalties, restitution, and compliance costs on financial giants, including Bank of America, Capital One, Citigroup, and JPMorgan Chase.
The dispute over the CFPB is the latest attempt by business interests to limit the scope of Dodd-Frank. Backed by Wall Street and corporate lobbyists, Republicans in Congress have tried to roll back various provisions of the law. That effort has so far failed, and now the courts have become an alternative venue for the campaign. “The financial industry is using all the tools available to resist the regulation mandated under Dodd-Frank,” says Brian Marshall, policy counsel at Americans for Financial Reform, an advocacy group.
On March 30, in a separate case, a federal trial judge in Washington rejected a major ruling by the Financial Stability Oversight Council, another creation of Dodd-Frank. The FSOC had designated MetLife too big to fail, making the largest U.S. life insurance company subject to heightened regulatory and financial requirements. The court called that decision “arbitrary and capricious.”
If upheld, the ruling favoring MetLife could undermine the council’s authority to designate nonbanks as “systemically important financial institutions”