Confirmation of Director Cordray Could Substantially Increase CFPB Enforcement Activity

Michael L. Mallow co-authored this opinion piece.

Yesterday’s Senate confirmation of Richard Cordray as director of the Consumer Financial Protection Bureau could have immediate consequences for the CFPB’s Enforcement Division and for businesses that have been accused of violating federal consumer protection laws.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created the new agency, the CFPB’s enforcement authority was contingent on the proper appointment of a director.  Although Mr. Cordray was appointed by President Obama through a “recess appointment” process, questions about the recess appointment raised doubts about the agency’s authority to pursue civil enforcement actions.

Those doubts were further fueled by the February 2013 decision of the U.S. Circuit Court of Appeals for the District of Columbia in Canning v. National Labor Relations Board, holding that the President’s recess appointment of three NLRB board members, made on the same day Director Cordray’s appointment, was “constitutionally invalid.”

Since Director Corday’s appointment, the Bureau has filed only two contested civil enforcement actions.  All of the other 17 enforcement actions brought by the agency, including eight civil actions filed in federal court and nine administrative actions within the CFPB, consisted of stipulated resolutions where the parties agreed in advance to the financial and other terms of the settlements.

The Bureau filed the first of the two disputed actions, which also happened to be the first civil enforcement action brought by the CFPB against any defendant, in July 2012 against a Southern California attorney, his law firm and other defendants that offered loan modification services to consumers.  Although the defendants challenged the CFPB’s authority to bring enforcement actions, including questioning the validity of Director Cordray’s recess appointment, the court denied their motion without reaching the merits, holding that the defendants’ argument was inadequately articulated and waived as a result.

In the other disputed action, filed by the CFPB in May 2013 against two debt settlement companies based in New York and New Jersey, the deadline for the defendants to respond has not yet come due.  In light of the D.C. Circuit’s decision in Canning, however, it could be expected that the defendants will also challenge the Bureau’s authority in their initial responses.

The Senate’s confirmation of the agency’s director now eliminates any doubts about the recess appointment and the CFPB’s ability to initiate enforcement actions going forward.  Given that the CFPB has an extensive enforcement staff, including numerous experienced regulatory attorneys and paralegals, companies subject to the Bureau’s jurisdiction should expect that CFPB enforcement activity will substantially increase in the immediate future and should prepare accordingly.

Michael L. Mallow is the Chair of Loeb & Loeb LLP’s Consumer Protection Defense Group.  Michael A. Thurman is a partner in Loeb’s Los Angeles office and co-head of the firm’s Consumer Financial Protection Bureau Task Force.