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”

Bloomberg Businessweek (Asia) - - CONTENTS -

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”

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