Last month Ocwen Financial Corporation announced that the company would challenge the constitutional authority of the Consumer Financial Protection Bureau (CFPB), asserting that the bureau lacks oversight from the White House and Congress.
And that’s an understatement. The CFPB should be called the Center for Protection Against Borrowing.
Widely supported by Senator Elizabeth Warren (D-MA), the CFPB was created to prevent irresponsible practices that hurt consumers. But, as predicted, the CFPB has become a bludgeon to beat up banks, mortgage companies, and other businesses in the financial sector to further a political agenda.
In the lending community, stories of the CFPB asking for documents repeatedly, not conducting full reviews of requested files, basing allegations off flawed data analysis, and leveraging fines disproportionate to crimes are abundant. The CFPB holds back lenders from doing what they do best – lend money to consumers for homes, cars, and personal business investments.
But more importantly, the CFPB has created a chilling effect on the industry. Banks and mortgage companies are afraid of “how much can you really pay” fines — or even criminal prosecution if Senator Warren has her way – if they do not agree with the CFPB’s flawed facts and conclusions. These regulations, and the culture of uncertainty they create, hurt the very people that the CFPB was created to help.
Finally, one company – Ocwen – is fighting back.
Ocwen contends that the CFPB is unconstitutionally structured because it vests too much unfettered power in the hands of one agency and its director without any meaningful oversight from the executive or legislative branches. Federal agencies sometimes abuse power through “rulemaking” – rewriting rules to achieve a political outcome.
Congress often passes legislation enabling regulatory authorities to meet broad goals, but leaves the method of meeting those goals to rulemaking within the agency. The same is true for agency enforcement action, which is often left to the discretion of bureaucrats.
Ocwen is currently mired in litigation with the CFPB about mortgage servicing practices regarding loans that the company did not originate but serviced. The CFPB accuses Ocwen of in “at least one thousand instances” starting foreclosure procedures on consumers applying for loan modifications to save their homes. Yet the CFPB has refused to detail the specifics of even one loan they are referring to in the enforcement action.
Ocwen’s loan portfolio is made up primarily of struggling borrowers. I guess the CFPB missed the public data that shows how Ocwen has completed over 735,000 loan modifications since 2008. The company only pursues foreclosure when all other options have been exhausted. The legitimacy of Ocwen’s activities to help borrowers is well-documented, conversely, the constitutionally of the CFBP is not.
Recently a three-judge panel in the D.C. Court of Appeals in the case of PHH Corp. v. CFPB found that the CFPB is unconstitutional as currently structured. The entire D.C. Appeals Court is now reviewing the decision, with the Department of Justice filing in support of the panel.
Ocwen is seeking to overturn the previous enforcement actions taken against the company by the CFPB, citing the constitutional challenges to the CFPB’s executive and judicial authority. The findings by the D.C. Appeals Court, combined with Ocwen’s leadership in helping borrowers remain in their homes, should be more than enough to end the unwarranted prosecution. The CFPB is only on a quest to prove its own legitimacy, and help Director Richard Cordray keep his job.
Why is this happening? Lack of oversight of the government. Oversight is the key provision of our constitution that allows government to govern without deteriorating into tyranny.
And that’s exactly Ocwen’s point.
John Ransom is finance and economics writer and editor in Washington, D.C., Singapore, and Southeast Asia specializing in global markets and security.