Let’s go DOGE!
Now that the Inauguration is over (and Vivek Ramaswamy has apparently resigned), I owe Elon Musk and the Department of Government Efficiency (DOGE) an apology. I was clearly too harsh on the DOGE concept in my December 2 post. Frankly, as a limited government zealot, I should have done more to sing the praises of the spirit of DOGE instead of questioning its sincerity. But, as demonstrated by an unprecedented slew of recent CFPB activity, the financial service industry needs DOGE to get right to work and I am rooting for its success.
Brilliant AEI scholar and author Yuval Levin makes a better case for DOGE’s success than I ever could in his recent National Review article titled, “How the DOGE Could Succeed” which, if you are a limited government zealot like me, or even a CFPB staffer worried about what the new administration holds for your future, is an excellent advice piece.
Frank'n Dodd redux?
Meanwhile, since the election, CFPB has gone on a head-spinning bender of regulatory issuances and litigation. I previously wrote about grinchy pre-Christmas CFPB litigation filings, such as CFPB's RESPA Complaint against Rocket and Realtor Jason Mitchell (CFPB's complaint language seemed lifted right out of the RESPA and RICO case against UWM). Since that post I have concluded that “Launch everything at once!” is the CFPB’s mantra in the waning days of Rohit Chopra’s leadership.
While I would love to make sense of it all for my readers, I have to say that CFPB’s rushed, but voluminous proposed and final rules, as well as litigation filings and consent order “guidance” are simply too much to review, digest and consider; especially in light of the questionable probability of implementation by new CFPB leadership and likely challenges to constitutionality, authority, and due process.
So, my apologies for failing to summarize this material into a coherent framework for compliance simplicity and implementation. Frankly,[1] the volume of CFPB’s new and proposed regulation and guidance reminds me of the period before and immediately after the Dodd Frank Act was enacted when there were so many proposals to follow that many law firms had all hands on deck just to track and report on the daily status of negotiations and amendments and rulemaking mandated by Dodd Frank. Eventually those folks got paid to do other things to do with their time.[2]
Increasing costs and the complexity subsidy
CFPB’s continued demonization of “junk fees” notwithstanding, this flurry of activity (whether implemented or not) will tend to increase costs for lenders (costs which will inevitably be passed on to all consumers) and result in complexity subsidies to larger market participants. I suppose it would be too much to expect the CFPB itself to ease that complexity by maintaining its own summary database tracking the status of all the pending and proposed changes. Given his expressed disdain for the people who are tasked with guiding financial service clients on how to behave in a compliant fashion, however, it is hard to imagine Mr. Chopra doing anything that might benefit all those “leeches”, err, lawyers. No, there is no sympathy for regulatory lawyers. I had hoped to use this space to promote some excellent financial service law firm’s online summary chart of all of these recent CFPB’s actions and status, but, unfortunately, I couldn’t find such a free resource before publication.[3] So, the complexity subsidy is real.
While there might be some good and/or well-considered items arising from CFPB’s recent regulatory and litigation dump, durability of any of it may be a different matter. CFPB clearly rushed much of its latest issuances and actions, opening the door to legal challenge and providing easy excuses for the new administration to reverse course.[4] I would add that given his market efficiency priors, I am disappointed in Director Chopra’s failure to properly consider the consolidating and inflationary effects on the consumer finance marketplace generally that many of these recent proposals are likely to cause.[5]
Who’s contractual freedoms?
Meanwhile, instead of offering durable and well-considered rules of the road, several of Chopra’s CFPB’s parting agency actions seem as petulant and effective as a North Korean missile test. For example, CFPB’s proposed rule to prohibit certain contract terms seems to fall in that category. Two years ago, CFPB claimed that it needed a registry of all lender forms to figure out what consumer contract clauses it might find objectionable (that proposed rule has not been implemented yet).[6] In my Musing on it at the time, Ed. #56: Compliance for Thee?,[7] I said, “I would call CFPB’s stated purpose disingenuous. CFPB likely already knows what contract provisions they don't like (arbitration is at the top of their list) but realizes that issuing a rule on that would likely be futile.”
So yes, CFPB knew exactly what contract clauses they didn’t like and (on the way out the Chopra era door) issued a futile rule that essentially admits the stated purpose of the contract registry was a sham. CFPB realizes that a rule transparently designed to federalize state consumer contract law in the name of protecting “fundamental freedoms” isn’t likely to go anywhere without Congressional action, so this is clearly a political statement, not a real effort at rulemaking. Contract law is a matter of state law and CFPB does not have a mandate, or the needed authority to preempt state contract laws generally based on its own determination of what “fundamental freedoms” exist. From my perspective, this proposal reeks of old grievances of consumer advocates and their class action lawyer supporters who are still frustrated about past (pre-CFPB) losses before state court judges on these issues.[8]
Back to DOGE
I assume all of the Chopra regime’s missiles were launched in advance of yesterday’s Trump 2.0 inauguration.[9] CFPB staffers, on the other hand, can see the writing on the wall and seem to be expressing a greater humility in their approach with a new openness to reformative ideas for regulatory reform and market improvement from industry. Even if they don’t think DOGE needs to be taken seriously, the spirit of DOGE’s mission should be. As further explained by Mr. Levin,
“Reversing bad regulations requires deploying the same procedures and powers (and even most of the same people) that produced them. The federal courts will not excuse failures to abide by legally required procedures because they are aimed at unmaking rules rather than making them…, the Court’s recent moves to diminish administrative power, which were justified, will make the DOGE’s work harder, not easier, and will mean that Congress should be its audience as much as the executive branch.”
Again, I don’t know if DOGE itself is going to be a serious force for change, but the spirit of DOGE certainly could be. If CFPB leadership and staff are open to change, optimistically, in the coming months, we have an unprecedented opportunity to actually achieve meaningful regulatory reform for the mortgage industry. I will support that effort in any way I can.[10]
[1]Important word choice.
[2]Such as provide guidance on compliance with the Dodd Frank Acts laws and regulations for financial service companies over the past 15 years.
[3]Please contact me (or Rob Chrisman) if you maintain such a database and are willing to make it publicly available.
[4]Perhaps they are just laying markers down for the next administration in 4 years but this does highlight why a different structure for CFPB might not be so politicized.
[5] I can’t emphasize enough that CFPB needs to stop acting like it is an overmatched consumer advocacy organization representing only the most vulnerable consumers. To properly fulfill its mission, CFPB needs consider the impact of its protective actions on all American consumers and to support a competitive and fair marketplace.
[6] I called that proposal "enforcement by regulation" because it would be impossible for CFPB to actually review the tremendous volume of material they were asking for and so they really only planned to use the registry as a “gotcha” weapon against lenders who failed to fully comply with its burdensome and pointless requirements.
[7]See also footnotes 16-20 of that edition.
[8] Notably, the anti-arbitration agreements crowd will never cease fighting that boogeyman.
[9] I really shouldn’t count those chickens until a new CFPB director is in place.
[10]As noted in my first DOGE post, I can’t afford to give up my day job to support DOGE’s efforts, but I write (dare I say) an influential mortgage blog that has nearly 2,500 mortgage industry subscribers, many of whom are in government and trade association positions. Hopefully, i can make an impact that way.
Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog available at www.mortgagemusings.com. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission. All rights are reserved.