A decision from the Supreme Court a couple of weeks ago has stirred a number of law firms to opine whether the ruling will have an impact on operations within the Bureau of Consumer Financial Protection.
In Lucia v. Securities & Exchange Commission, the Supreme Court ruled that administrative law judges, like those used by the BCFP, are “Officers of the United States” and must be appointed by the president, a court of law, or the head of the department. In Lucia, the plaintiff was fined $300,000 and barred from the securities industry for life by an administrative law judge who was hired by staff members of the SEC. The Supreme Court overturned two lower court rulings that the administrative law judge was appointed properly.
The BCFP has used administrative law judges – most notably in PHH v. CFPB, a case that ultimately argued whether the leadership structure of the agency was constitutional. That lawsuit was filed after an administrative law judge, who was on loan from the SEC, ruled that PHH had violated the Real Estate Settlement and Procedures Act (RESPA) in a kickback scheme.
The ruling from the Supreme Court opens all kinds of questions and scenarios being pondered by legal experts about the impact on the BCFP. For example, was Richard Cordray, the former director of the agency the one who hired Christine Kirby, the current administrative law judge used by the BCFP, in 2015 when she was hired? Even if he was, does Cordray count as the head of a department, since the BCFP was established within the Federal Reserve System?
This is yet another cloud of uncertainty related to the BCFP hanging over the ARM industry specifically and the financial service industry more broadly. Between questions of who should be leading the agency to whether the leadership structure is constitutional to whether it ever should have been created in the first place, there are no shortage of topics and the impact of any of them could be massive.