Are the Federal Courts or the Republican Controlled Congress the Greater Threat to the CFPB?

Many banking lawyers believe recent actions by federal courts, and by Congress represent the greatest threat to the Consumer Financial Protection Bureau (CFPB) since its existence. Clearly, recent actions by federal courts and by Congress threaten the broad authority of the CFPB and how it exercises that authority. There is an outstanding question regarding which of the two threats is greater.

Two recent federal court holding threaten the CFPB's aggressive enforcement strategies unlike in prior actions. First, on October 11, 2016, by a 2-1 margin, a three-judge panel of the US Court of Appeals for the DC Circuit (DC Circuit) in PHH Corp. v. CFPB held, among other things, that the CFPB's single-director structure was unconstitutional because it permitted removal of the CFPB Director only for cause. The panel in the PHH case also provides excellent language that restricts the CFPB's ability to unilaterally overrule another federal agency's decision. Subsequently, the DC Circuit vacated the decision of the panel and granted the CFPB a re-hearing in banc scheduled for May 24, 2017. If the DC Circuit en banc rules against the CFPB, then it is widely expected that President Trump will remove CFPB Director Richard Cordray, and replace him with a new director who will change the direction of the CFPB to a more industry-friendly CFPB. Second, on March 17, 2017, the US District Court for the District of North Dakota in CFPB v. Intercept Corporation also delivered a major defeat to the CFPB by granting a motion to dismiss a CFPB complaint against the Intercept Corporation defendants because the CFPB complaint failed to allege facts sufficient to support a plausible claim upon which relief could be granted. The CFPB essentially claimed that Intercept Corporation, which is a payment processor, engaged in unfair, deceptive and abusive activities and practices by knowingly and illegally processing payments for its clients who were engaged in fraudulent or illegal transactions. The district court characterized the CFPB allegations as "an unadorned, the-defendant-unlawfully-harmed-me accusation." A common theme between the three-judge DC Circuit panel decision in PHH and the federal district court in Intercept is that federal courts will require the CFPB to prove its claims and will not permit the CFPB to substitute its judgment for the judgment of Congress.

Congress has also recently taken action in response to the CFPB. On May 4, 2017, by a party line...