President Obama to Make ‘Recess Appointment’ of Richard Cordray to Head CFPB

Move has widespread impact for mortgage bankers and brokers.

As was widely expected, the president today announced that former Ohio Attorney General Richard Cordray will be appointed to the position of Director of the Bureau of Consumer Financial Protection (or “CFPB” – Consumer Financial Protection Bureau) while Congress is on recess.  The appointment is intended to circumvent a filibuster that was being staged by 42 senators who wanted to see changes made to the underlying Dodd-Frank legislation before allowing a vote on Cordray’s confirmation. 

What does this mean? My CE students already know.

Those of you who took my continuing education course in 2011 are intimately familiar with both Cordray and the CFPB and understand more than most that this move is NOT an insignificant one.  Without an official director, the CFPB could not utilize many of the powers that were granted to the agency in the Dodd-Frank legislation.  Now that Cordray will be taking the reins of the organization, the CFPB will be able to wield its full power – including supervisory authority over non-bank originators (i.e. mortgage banks and brokers) and rulemaking authority that will impact these businesses (i.e. most of you reading this post).  This move also paves the way for the CFPB to issue the new combined GFE/TIL disclosure that has been in development for the past year, as well as a redesigned HUD-1 settlement statement.  Expect to see those rolled out over the next few months, with a final implementation date later in the year.  Also, we should expect to see a mortgage loan originator “duty of care” rule issued soon as well, clarifying our responsibilities to safeguard borrowers from harm.  I have no advance knowledge of what that will look like, but I will certainly share the critical points with you when it is released.

Possible bump in the road.

There is one minor detail that may pose a bit of a bump in the road for Cordray: Congress is not officially in recess.  The Constitution prohibits either chamber from recessing for longer than three days without the consent of the other chamber.  In this case, the House of Representatives objected to the Senate going into recess, which triggered a series of “pro-forma” sessions where one member of Congress opens and closes a session (of an empty House of Representatives) once every three days.   There are some constitutional questions surrounding this appointment, but Congress has no grounds to challenge this in court.  Any challenge to the appointment’s constitutionality would have to be made by an individual or organization directly affected by the CFPB.  Some members of Congress indicated earlier this morning that they thought such a challenge would be forthcoming.  While this may be true, it will take time, and there is no guarantee of the eventual result. 

Get your house in order – NOW!

The bottom line is, those of you in compliance or ownership positions at non-bank lenders and brokers would be wise to ensure that your business practices are free of unfair, deceptive and abusive acts and practices (UDAAP) and that you’re ready to adapt to any significant changes that may be coming down the pipe.  I also strongly recommend that you obtain a copy of the CFPB’s “Supervision and Examination Manual” to give you a strong reference point for the items that the CFPB will be looking for when conducting examinations of companies (audits).   This is doubly true for any of you who are engaged in servicing loans.

Happy new year to all, and be sure to continue watching this space for updates on critical issues that will affect you in the future.  Happy originating!

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