CFPB Ratifies Most Pre-Seila Law Regulatory Actions

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The CFPB has issued a ratification of “the large majority of its existing regulations” and certain other regulatory actions taken from January 4, 2012 through June 30, 2020 (Ratified Actions).  The ratification, which was published in today’s Federal Register, was issued in response to the U.S. Supreme Court’s decision last week in Seila Law which held that the Dodd-Frank provision that only allows the President to remove the CFPB Director “for cause” violates the separation of powers in the U.S. Constitution.

In its discussion of the ratification, the Bureau states that while it is intended to avoid any doubt as to the validity of the Ratified Actions created by Seila Law, “this ratification is not a statement that the Ratified Actions would have been invalid absent this ratification.”  Instead, according to the Bureau, the ratification was issued “out of an abundance of caution.”

The ratification relates back to the original date of each action that it ratifies and covers all of the following regulatory actions during the time period above with the two exceptions indicated:

  • All rules and regulations (including amendments to Bureau regulations and regulations issued jointly with other agencies) published in the Federal Register except the Bureau’s 2017 final arbitration rule (which was overridden by Congress pursuant to a joint resolution under the Congressional Review Act that was signed by the President) and the Bureau’s 2017 final payday loan rule.  The Bureau has rescinded the payday loan rule’s underwriting provisions and issued a separate document ratifying its payments provisions.
  • Consumer information publications issued under Regulation X and Regulation Z
  • All FCRA disclosure notices
  • Approval under Regulation B of the final redesigned Uniform Residential Loan Application
  • EFTA preemption determinations
  • Concurrences with the federal banking agencies regarding real estate appraisals

With regard to ratification of other actions, the Bureau states:

The Bureau is considering whether ratifications of certain other legally significant actions by the Bureau, such as pending enforcement actions, are appropriate.  Where that is the case, the Bureau is making such ratifications separately.  On the other hand, the Bureau does not believe that it is necessary for this ratification to include various previous Bureau actions that have no legal consequences for the public, or enforcement actions that have been finally resolved.

While it was widely anticipated that the Bureau would move quickly to ratify its prior actions following the Supreme Court’s Seila Law decision, questions were raised by commentators about the ratification process, including whether the Bureau could use a “blanket” ratification covering multiple actions or whether the Administrative Procedure Act’s notice-and-comment procedures would apply.  Perhaps anticipating those questions, the Bureau’s discussion includes the following statements:

  • Director Kraninger “is familiar with the Ratified Actions and has also conducted a further evaluation of them for purposes of this ratification.  Accordingly, the Director is making an informed decision to ratify them.”  (The Bureau also notes that the Director’s decision to ratify the regulatory actions is reinforced by the significant reliance interests they have engendered, and that the ratification does not foreclose the Bureau from revisiting the Ratified Actions through rulemaking or other initiatives.)
  • The APA’s notice-and-comment procedures do not apply by their terms to the ratification because the ratification is neither a “rule” or a “rule making” as defined by the APA.
  • Even if APA notice-and-comment procedures were required for the ratification, they were already satisfied by the original rulemaking processes for the Ratified Actions.
  • New notice-and-comment procedures would be “impracticable” and “contrary to the public interest” under the APA because of the Bureau’s belief that prompt ratification is important to avoid uncertainty about the status of the Ratified Actions after Seila Law.  Such uncertainty, if not promptly addressed, “could have had a deleterious effect on the ongoing operations of the affected markets, given the significant role of the Ratified Actions in these markets.”

Director Kraninger’s limited approach to ratification differs from the all-encompassing approach taken by former Director Cordray.  In August 2013, following his Senate confirmation, Mr. Cordray published a notice in the Federal Register that stated:

I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper.  To avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period.

To refresh our readers’ memories, Mr. Corday was initially named Director by President Obama in a recess appointment.  In January 2013, the D.C. Circuit ruled in Noel Canning that President Obama had exceeded his constitutional recess appointment authority when he filled three vacancies on the National Labor Relations Board during the same “recess” in which Mr. Cordray’s appointment was made.  (The Supreme Court subsequently affirmed the D.C. Circuit’s judgment that the NLRB appointments were invalid.)  Since the D.C. Circuit’s decision also called into question the validity of Mr. Cordray’s recess appointment, Mr. Corday was subsequently renominated by President Obama and, in July 2013, he was confirmed by the Senate as CFPB Director. 

It is possible Director Kraninger limited her ratification to regulatory actions in order to give the Bureau additional time to review its pending enforcement matters on a case-by-case basis.  In Seila Law, the Supreme Court remanded the case to the Ninth Circuit to consider the CFPB’s argument that the civil investigative demand challenged by Seila Law should still be enforced.  In November 2016, the Ninth Circuit ruled in CFPB v Chance Edward Gordon that former Director Cordray’s invalid recess appointment did not render the enforcement action against the defendant invalid because his subsequent valid appointment coupled with his notice ratifying the actions he took as Director while serving as a recess appointee cured any initial constitutional deficiencies.  The CFPB’s case-by-case review might include an evaluation of whether the Ninth Circuit will again be a favorable forum in which to assert a ratification argument.

As noted above, the discussion accompanying Director Kraninger’s ratification states that “the Bureau does not believe that it is necessary for this ratification to include…enforcement actions that have been finally resolved.”  While the Bureau may be correct in its assessment, it could nevertheless face questions regarding the impact of Seila Law on settled or otherwise resolved enforcement matters, particularly given the limited body of case law dealing with ratification and related doctrines such as de facto officer and de facto validity.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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