The SEC and the Consumer Financial Protection Bureau were given a set of powers in the wake of the 2008 financial crisis. Efforts are now being made to dismantle these structures. Is this the preamble to a coming global financial crisis?
In a development that is likely to have major ramifications for the policing of Wall Street, a U.S. appeals court is set to weigh whether certain hiring practices at two of the country’s top financial market regulators have violated the U.S. Constitution in a pair of cases.
The future structure of the Consumer Financial Protection Bureau, which was created by the 2010 Dodd-Frank Wall Street reform law in the wake of the 2008 financial crisis, to protect consumers from predatory lending, now hangs in the balance.
A panel of judges at the U.S. District Court of Appeals for the District of Columbia Circuit will now reconsider a prior ruling which found that the powers of Richard Cordray, the director of the Consumer Financial Protection Bureau, was unconstitutional since he can only be fired by the president for cause, and not at will.
In other case, the appeals court will also weigh in on a prior ruling which found that the Securities and Exchange Commission did not violate the Constitution when it hired administrative law judges to preside over its in-house court proceedings.
Both cases have emboldened a few financial companies to push back against the CFPB and the SEC. Both of these agencies have accused them of wrongdoings and the outcome of their cases will be critical since it will provide ammunition to critics of both the agencies.
Republicans have accused the CFPB of overstepping its jurisdiction and have called for legislation that makes it accountable to the Congress.
With Donald Trump assuming office, their rhetoric has intensified. They are now wanting the ability to dismiss Cordray for any reason and put its budget under congressional control.
The outcome of either of these two cases will take months and will obviously be referred to the U.S. Supreme Court.
Earlier this week, the SEC suspended all pending in-house cases in which defendants may appeal before the Tenth Circuit, amid the legal limbo surrounding the issue.
Significantly, the majority of the judges hearing these two landmark cases were appointed by Democratic presidents. This has the potential to tip the balance in favor of the government.
The cases are Raymond J. Lucia Companies, Inc v. SEC, U.S. Court of Appeals for the District of Columbia Circuit, 15-1345 and PHH Corporation v. CFPB, 15-1177.