The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to brian.cheung@spglobal.com.
At the CFPB
A federal appeals court ruled Jan. 31 that the Consumer Financial Protection Bureau's single-director structure is constitutionally sound, overturning an October 2016 decision recommending executive oversight as a check to the agency's leadership design. The U.S. Court of Appeals for the District of Columbia Circuit argued that the CFPB's structure is not unlike other independent agencies with a single director, such as the Office of the Comptroller of the Currency. The court also upheld the agency's protections against removal at will, noting that the Federal Trade Commission, for example, also has a for-cause protection that preserves its independence by not allowing the president to remove its leader without reason.
But the ruling did not reverse all the findings in the October 2016 opinion. The court notably preserved the previous court's conclusion that the CFPB did not have the proper grounding to levy a $109 million fine against mortgage servicing company PHH Corp., agreeing that the agency improperly interpreted the Real Estate Settlement Procedures Act, or RESPA, in assessing civil money penalties on the company.
Former CFPB Director Richard Cordray tweeted that the statutory findings of the court's opinion were "mixed," although he saw the decision as a victory for "maintaining independent law enforcement free from politics."
PHH saw the decision with respect to RESPA as "important and gratifying," but a spokesperson said the company is still "evaluating next steps" for a possible appeal.
Observers say the legal fight is far from over. "[T]he Court of Appeals has decided to let the Supreme Court sort this issue out (if any party elects to continue the appellate process)," said Joseph Lynyak III, partner at international law firm Dorsey & Whitney.
The decision also has different implications for Democrats and Republicans on Capitol Hill now that Mick Mulvaney is at the CFPB's helm. Longtime CFPB opponent and House Financial Services Committee Chair Jeb Hensarling, R-Texas, issued a statement expressing disappointment over the decision but said he takes "great solace" in having Mulvaney at the CFPB to transform the agency from within. Senate Banking Committee Ranking Member Sherrod Brown, D-Ohio, said the ruling on the CFPB's independence is "good news" but said the agency cannot secure full independence until a "lawfully appointed leader is in place," referring to the fact that Mulvaney's acting director position is still being contested in court.
Mulvaney, for his part, has not stopped his efforts at shrinking the agency. On Jan. 31, the CFPB continued the fact-gathering process to build a case for reforming the agency's functions, by launching the public comment process on the agency's administrative adjudication process.
This week, Mulvaney also consolidated the agency's fair-lending enforcement unit into the office of the director, effectively reassigning the agency's staff tasked with policing fair lending violations into roles dealing with "advocacy, coordination and education."
Democrats are still pushing back on Mulvaney's call for change at the CFPB. On Jan. 31, a group of Democrats led by Sen. Elizabeth Warren of Massachusetts penned a letter to Mulvaney questioning the reversal on agency work regarding payday lending, alleging that Mulvaney delayed implementation of the Cordray-era controls on small dollar lending because of donations he received from payday companies while he was running in previous U.S. House of Representatives races. Among the donors: World Acceptance Corp., which Mulvaney vindicated of wrongdoing by tossing a 2014 enforcement action.
At the Fed
Incoming Federal Reserve Chairman Jerome Powell "popped his collar" Feb. 1 as Fed employees bid farewell to Janet Yellen, the first woman to lead the central bank. Yellen, whose term as Fed chair expires over the weekend, is joining her predecessor Ben Bernanke at the Brookings Institution, according to a Feb. 2 announcement.
The New York Fed started a #PopYourCollar hashtag honoring Yellen's proclivity to pop up her suit collar. The hashtag features Fed employees across the country and other Fed watchers who followed her lead and popped their collars at work. Powell joined in at a Feb. 1 farewell event for Yellen.
Powell will start as Fed chair Feb. 3 but will be officially sworn in Feb. 5 at 9 a.m. ET.
His first Federal Open Market Committee meeting is set for March, and analysts expect the FOMC to decide to raise rates in that meeting. The FOMC kept rates unchanged this week.
Also this week, the Fed released the hypothetical scenarios that the country's largest banks will have to consider for the annual Comprehensive Capital Analysis and Review and Dodd-Frank stress tests. The scenarios are tougher than last year's, with one analyst describing the severely adverse scenario as "pretty nasty."

