Past CFPB actions may portend fate of mortgage rules

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Following the invalidation of three presidential “recess” appointments to the NLRB by the D.C. Circuit Court of Appeals in Noel Canning v. NRLB, theories continue to swirl about the fate of Director Cordray. The Director was appointed based on the same recess authority and at the same time as the invalidated NRLB appointments. There also is speculation about the fate of the various mortgage-related rules recently adopted by the CFPB. Should Director Cordray’s appointment be invalidated, the manner in which initial rulemakings were undertaken by the CFPB may portend the fate of the recent mortgage rules. 

In 2011, the CFPB adopted interim rules under the various laws designated as “enumerated consumer laws” by Dodd-Frank. The CFPB immediately published an interim rule under the Alternative Mortgage Transactions Parity Act on July 22, 2011, the day after it became a live agency. The interim rule was approved on July 19, and was effective immediately on publication.  Interim rules under the other enumerated consumer laws were published between December 16 and 27, 2011, and each interim rule became effective on December 30, 2011. The interim rules mainly recodified rules from the Fed and other agencies into CFPB rules in Title X of the Code of Federal Regulations. Director Cordray was appointed on January 4, 2012. 

All of the interim rules were approved by Alastair M. Fitzpayne, in his capacity as Deputy Chief of Staff and Executive Secretary—Department of Treasury.  Presumably the interim rules were adopted by the Treasury Department under the authority set forth in Dodd-Frank Section 1066(a). That section authorizes the Treasury Secretary to perform the functions of the CFPB under Dodd Frank Title X until a Director is confirmed by the Senate. Pursuant to 31 U.S.C. §321(b), the Treasury Secretary may delegate his powers to an officer or employee of the Treasury Department. Presumably, Secretary Geithner delegated his authority under Section 1066(a) of Dodd-Frank to Mr. Fitzpayne.

All of the recent mortgage rules were approved by Director Cordray in his capacity as Director of the CFPB.  Should the appointment of Director Cordray be invalidated (which is purely a matter of speculation at this time), this suggests that the recent mortgage rules would not survive without further action.  Presumably, barring a political resolution, the Treasury Department would attempt to take appropriate steps to ensure the mortgage rules are valid.  My partner Alan Kaplinsky has suggested such steps might include having the Treasury Secretary or his delegatee utilize Section 1066 of Dodd-Frank to ratify the regulations issued by Mr. Cordray, which can be accomplished without weakening the Government’s position that the Canning opinion is wrong and will be overturned by the Supreme Court.

We will continue to monitor developments in this area.