Woodbridge founder Robert Shapiro gets 25 years in prison for $1.3 billion Ponzi scheme

Robert Shapiro, the founder of the Woodbridge group
of companies, will spend 25 years in prison after pleading guilty to charges
that orchestrated a $1.3 billion real estate Ponzi scheme that bilked thousands
of investors out of hundreds of millions of dollars.

Nearly two years ago, the Securities and Exchange Commission sued Shapiro for allegedly running a Ponzi scheme that defrauded more than 8,400 investors by promising high returns on real estate investments.

According to the SEC, many of Shapiro’s alleged victims were
seniors who invested their retirement savings into the supposed Ponzi scheme.

Last year, the SEC ordered Shapiro and the Woodbridge companies to pay back $1 billion for operating the Ponzi scheme.

According to the SEC, Judge Marcia Cooke of the District Court for the Southern District of Florida approved judgments against Woodbridge and its 281 related companies that order the companies to pay $892 million in disgorgement.

Additionally, Cooke ordered Shapiro to pay a fine of $100
million, plus disgorgement of $18.5 million in ill-gotten gains and $2.1
million in prejudgment interest.

But Shapiro’s troubles didn’t end there.

Shapiro also faced criminal charges from the U.S. Attorney’s Office, and according
to multiple reports, Shapiro was sentenced last week to 25 years in prison.

From the South Florida Sun Sentinel:

Shapiro, 62, learned of his fate after pleading guilty last month to mail and wire fraud and income tax evasion. U.S. District Judge Cecilia Altonaga, citing the heart-wrenching stories of a more than a half-dozen victims who testified in court about their losses Tuesday, rejected a defense argument that Shapiro deserved less time because he admitted his wrongdoing and helped authorities unravel his six-year-long fraud scheme.

According to authorities, Woodbridge’s main business model
was to solicit money from investors in exchange for promissory notes that
supposedly reflected loans to Woodbridge that paid high monthly interest rates.

“Woodbridge falsely claimed that these investments were tied
to real property owned by third parties and that the third parties would be
making the interest payments to Woodbridge and its investors; it was portrayed
as an investment in a hard-money lending business,” the U.S. Attorney’s Office
stated. 

“Using high pressure sales tactics, Shapiro and his
co-conspirators marketed and promoted these investments as low-risk, safe,
simple, and conservative. And at minimum, investors were made to believe that
Woodbridge’s real estate dealings would generate the funds used to pay the
return on their investments,” the U.S. Attorney’s Office continued.

But, many of the supposed properties didn’t actually exist.
Beyond that, the few properties that actually existed were secretly owned by
Shapiro.

“Unbeknownst to investors, Shapiro created and controlled a
network of more than 270 limited liability companies, which he used to acquire
and sell the properties pitched to investors,” the U.S. Attorney’s Office
stated.

The company advertised high rates of return for its
investments, but the SEC previously claimed that Shapiro’s companies received
more than $1 billion in investor funds, but only generated approximately $13.7
million in interest income from “truly unaffiliated” third-party borrowers.

And without true income from the supposed investments,
Shapiro allegedly used new investor money to pay the returns owed to earlier
investors – the hallmark of a Ponzi scheme.

In total, Shapiro and his co-conspirators convinced more
than approximately 9,000 investors to invest more than $1.29 billion with
Woodbridge. According to court documents, at least 2,600 of these investor
victims invested their retirement savings, totaling approximately $400 million.

And while the companies may not have been successful,
Shapiro certainly lived like they were.

According to federal authorities, Shapiro misappropriated $36
million in investor money for himself and for the benefit of his immediate
family members, spending  millions on
personal expenditures,

Included among those were $3.1 million for chartering
private planes and travel, $6.7 million on a personal home, $2.6 million on
home improvements, $1.8 million on personal income taxes, and over $672,000 on
luxury automobiles. 

Eventually, Shapiro’s alleged scheme collapsed when the companies were unable to repay interest payments to certain investors. Fundraising from investors then stopped, Shapiro resigned, and most of his companies filed for Chapter 11 bankruptcy.

As part of his plea, Shapiro and his wife agreed to forfeit
certain assets, many of which were seized during a search executed by federal
agents at his home in Sherman Oaks, California.

They include, but are not limited to: artworks by Pablo
Picasso, Alberto Giacometti, Marc Chagall, and Pierre-August Renoir; a
collection of 603 bottles of wine; a 1969 Mercury convertible; luxury jewelry,
including a pair of 14-karat, white gold earrings with two black diamonds
(61.81 carats), two grey diamonds (23.92 carats), two rose-cut diamonds, and
266 round diamonds; a platinum ring with an oval-cut ruby (10.91 carats), two
trapezoid diamonds and 70 round-cut diamonds; a platinum ring with certified
Colombia emerald-cut emerald (9.54 carats), trapezoid-cut diamonds, and 166
round-cut diamonds; and other items.

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Zillow Offers launches in another Florida market

The ever-growing iBuying service Zillow Offers has now expanded into Tampa, Florida.

Starting Monday, homeowners in the Tampa region can now receive an initial cash offer from Zillow within 48 hours of putting their home on the market.

Zillow Offers is already available in other parts of Florida, including the southern region and Orlando.

“With Zillow Offers, we’re eliminating the pain points that disrupt sellers’ lives, like coordinating repairs and showings, while giving them peace of mind on the timing and price,” said Zillow Brand President Jeremy Wacksman. “We’re excited to bring this service to the Tampa Bay area so homeowners can have a simpler, more enjoyable selling experience.”

A Tampa-based broker will represent Zillow in each transaction. Home sellers who request a Zillow offer but decide to sell their home traditionally can also be connected to a local real estate agent to represent them in the sale.

Since Zillow Offers first launched in Phoenix in 2018, it has expanded into 21 other markets across the country.

Zillow has also announced plans to launch Zillow Offers in Cincinnati, Jacksonville, Florida, Los Angeles, Oklahoma City, and Tucson, Arizona by the middle of 2020.

The most recent metro to join Zillow Offers was in Sacramento, its third California market.

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U.S. Bank brings on Peter Gordon as head of emerging payments product and strategy

U.S. Bank has hired industry veteran Peter Gordon as executive vice president of emerging payments product and strategy, the company announced late last week.

In this role, Gordon will be tasked with overseeing the strategy and product development of emerging payments products and services at U.S. Bank.

“Peter is not only a top leader in emerging payments, but his breadth of experience across banking and payments will help us create winning strategies that bring real value to customers,” said Derek White, chief digital officer at U.S. Bank.

While Gordon works to develop the strategy and product development of emerging payments products and services, the company said a key part of his initial focus will be maximizing the use of RTP and Zelle throughout U.S. Bank.

“I’ve had great respect for U.S. Bank throughout my career – in particular, the work that’s been done in emerging payments with real-time payments,” Gordon said. “Today, I’m impressed with the clear-eyed vision that U.S. Bank leaders have on where we will take emerging payments. I’m excited to get to work on the strategies that will deliver great experiences for U.S. Bank customers.”

Prior to joining U.S. Bank, Gordon served as chief revenue officer at PayFi. He has a deep background in real-time payments, including serving as chief executive officer of PRMPayments. He has held at companies such as Mastercard and RBS Citizens, in addition to founding a community bank in Massachusetts. 

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How to survive the disruption of the mortgage industry

We hear the term “disruption” so frequently that it’s started to lose its luster. As a startup founder, I can attest to its overuse. But as Mark Andreessen quipped in 2001, “software is eating the world.” Incumbents are being displaced by software companies in industries across the globe, ours included, and it’s worthwhile to understand where our industry is in the process so you can adapt to ensure your lending business – and people – survive the process.

Former Microsoft executive Steven Sinofsky identified four phases of disruption that typically occur in an industry once new technology challenges the status quo: initial disruption, rapid linear evolution, convergence and, finally, a reimagined industry.

Disruption is subtle at first. With profitable businesses and large customer bases, incumbents barely notice. If they do, they’re dismissive – remember the industry reaction to “Push Button, Get Mortgage” in 2015? The disruptor finds an underserved niche in the market and builds a small customer base. Look at Uber, which launched in June 2010 in San Francisco as an SMS-based black car service targeting Bay Area techies, costing nearly twice that of a taxi. Taxi companies paid no mind to the startup touting “your own private driver.”

By the second phase, disruptors are laser-focused on product development and pleasing their small, loyal base. They view the industry through a new paradigm, prioritizing “low-hanging fruits” that were too small or unprofitable for incumbents to touch. Incumbents are still skeptical; those that do react mount a weak defense. They believe disruptors are fighting a losing battle.

I believe we’re already witnessing the second phase of disruption. We’re seeing a simultaneous surge of point solutions alongside broader, end-to-end platform plays. Like Uber and Airbnb, successful disruptors find real pain points to solve and then leverage their platform to disrupt from a new angle, inviting early adopters to ride their wave of success.

For incumbents, it’s imperative to act before the third phase of disruption. In 2013, Uber entered markets in Europe, China and Africa and unveiled UberX to provide a cheaper, more consistent transportation experience. That same year, many taxi companies released their own apps or banded together on platforms like Taxify, but the damage was done. Scenes of taxi cabs blocking streets and lobbying local governments seem like dying gasps for air to customers who, by 2019, view taxis as a relic of a bygone era.

This is the crux of the “innovator’s dilemma” – an incumbent fears hurting their core business and thus fails to evolve to meet customer demands, making it easier for the disruptor to poach their customers once markets converge. As Netflix CEO Reed Hastings noted when they made the risky leap from DVDs to streaming, “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

Luckily, the mortgage industry is early in the disruption cycle, and there’s still time to act. Quicken Loans founder Dan Gilbert once called Rocket Mortgage the “iPhone of home financing” but, as more technology disruptors enter the space, their digital-or-die approach might itself be disrupted.

We built Maxwell on the premise that the human relationships at the center of the mortgage loan are the most valuable part of the process, and I’m unconvinced that an entirely digital experience can supplant our need for a personal touch. As software “eats the mortgage world,” we must protect what’s valuable as we ride the wave of disruption (or risk getting crushed beneath it).

It’s not about overhauling your process; it’s about embracing the opportunity to participate in disruption. I’m immensely grateful for our customers who guide our efforts to build software that meaningfully impacts their business. Some are eager disruptors; others treat it as an investment venture, experimenting, measuring and deploying as their investments bear fruit. Neither approach is wrong, and both allow for an enduring focus on their core while delegating the rest to specialists.

As an employer, you have the power to prepare your people for change. Some employees may lack the skills or experience to readily participate in this tech-driven evolution, but through education and engagement, you can ensure they get the necessary technical development and exposure to adapt to technology before the industry shifts and leaves them behind.

Don’t ignore the signs of disruption around you. It’s here and it will impact your business. Proactive measures now ensure that disruption’s impact on your business will be positive as we enter the third phase of disruption.

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Traders now see Fed cut next week as a near-certainty

Futures traders now see a rate cut as the near-certain outcome of next week’s Federal Reserve meeting as a stagnant manufacturing sector weighs on the economy.

CME’s FedWatch tool on Monday showed a 91% chance of a 25 basis point cut at the October 29 and 30 meeting of the Federal Open Market Committee. Comments from Fed policymakers prior to entering the traditional pre-meeting quiet period indicated a bias toward a third consecutive cut.

“The U.S. economy confronts some evident risks in this the 11th year of economic expansion,” Fed Vice Chairman Richard Clarida said in a speech on Friday. “Business fixed investment has slowed notably since last year, exports are contracting on a year-over-year basis, and indicators of manufacturing activity are weakening.”

Earlier this month, the ISM index showed September’s manufacturing activity at the most depressed level in more than a decade as the U.S.-China trade war weighed on the economy. That conflict between the world’s two largest economies was the overriding concern of Fed policymakers at the September meeting, according to minutes released Oct. 10.

“The ISM manufacturing index plumbed its lowest level since the depths of the recession in 2009, heralding even more contraction in the factory sector,” Wells Fargo said in a note to clients on Monday. “Until trade policy is clarified in a way that has a degree of permanence, it is not clear what would signal to Fed policymakers that business fixed investment spending is set to improve meaningfully.”

Goldman Sachs on Friday credited the Fed’s prior two rate cuts with offsetting the trade war’s drag on the economy and said the central bankers probably have prevented a U.S. recession.

“While trade restrictions have likely tightened financial conditions – with an estimated growth hit of a quarter to a half of a percentage point – the Fed’s turn toward easing has offset this effect so far,” the investment bank said in a note to clients on Sunday.

Clarida’s warning on Friday of “evident risks” serves as the last word from the Fed before next week’s meeting. The central bank imposes a quiet period starting the second Saturday before an FOMC meeting during which officials refrain from commenting on the economy and monetary policy. The Fed refers to it as a “Blackout Period.”

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Will Supreme Court decision threaten CFPB independence?

On Friday, the Supreme Court agreed to hear the case to determine the constitutionality of the leadership of the Consumer Financial Protection Bureau – a move that has provoked a variety of responses.

As it stands now, President Donald Trump cannot fire the
CFPB director unless it’s for cause. The previous decision made the CFPB
director fireable at will, but that’s not the case anymore as the case
continues to be challenged in court.

And now the Supreme Court will have the final say.

Various groups are torn on the hearing, with some saying a
committee to head the bureau will keep it more accountable and others saying a
ruling against the current structure could threaten the CFPB’s independence.

“If the Supreme Court invalidates the CFPB director’s
for-cause removal protection, it would imperil the agency’s ability to function
as intended, and it would allow free reign for bad financial actors to
influence the agency,” said Yvette Garcia Missri, Center for Responsible Lending litigation counsel. “We’ve already
seen payday lenders successfully push their plan to delay and weaken the payday
rule, and restitution for consumer victims wronged by industry has
significantly declined under the agency’s current political leadership.”

“Congress intentionally created the current structure so
that the consumer bureau could make independent and unbiased decisions to
protect consumers—even when those decisions are opposed by intense lobbying,”
Garcia Missri said. ”The CFPB has been highly effective in responding to
unlawful, abusive practices within the financial services industry. Its
effectiveness and ability to respond to unlawful practices quickly, is
attributable in part to its leadership by a single director and its insulation
from political influence and industry capture.”

But others believe a change in CPFB leadership could
actually bring more accountability to the bureau.

“We urge the Supreme Court to rule that the CFPB as
structured is unconstitutional in order to help ensure government agencies are
accountable to American consumers and voters,” said John Berlau, Competitive Enterprise Institute senior
fellow.

“Under the leadership of current Director Kathleen
Kraninger, the CFPB has made some positive, free-market reforms that greatly
benefit consumers,” Berlau said. “But her good leadership doesn’t change our
belief that the CFPB must be made constitutionally accountable by having a
director subject to at-will removal by the person that Americans elect as their
president.”

Many in the housing industry agree that a board to lead the
bureau would be better than a single director.

“CUNA has consistently advocated for legislation that
provides for a multi-person, bipartisan commission to lead the bureau, as was
originally proposed by the Obama administration in 2009,” said Ryan
Donovan, Credit Union National Association chief advocacy
officer. “A commission is better for consumers because it would enhance the
independence of the bureau, bring diverse perspectives to the policymaking
table, ensure greater stability, and be more consistent with our country’s
democratic principles.”

But there is some worry that Supreme Court Justice Brett
Kavanaugh will be biased in this case.

“Justice Kavanaugh has demonstrated bias against the CFPB on
these exact issues and must recuse himself from this case,” Allied Progress Director Derek Martin
said. “He has previously weighed in on the specific question at stake in this
matter – whether the CFPB director can be fired without cause. This case
deserves to receive truly impartial judgment.”

Kavanaugh reportedly believes the CFPB, as it is currently structured, is unconstitutional.

And he’s written as much.

Back in 2016, Kavanaugh authored the Court of Appeals decision that declared the CFPB
unconstitutional due to its leadership structure. The case that led to the CFPB
being declared unconstitutional, which was brought by PHH, dealt
with how much power the agency’s director held.

In Kavanaugh’s mind, the director of the CFPB is the “single
most powerful official in the entire U.S. Government, other than the
President,” in terms of unilateral power.

The CFPB’s ruling could now change that.

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Embrace Home Loans names new senior vice president, retail and direct sales

Embrace Home Loans, a Rhode Island-based mortgage lender, announced this week that longtime employee Ryan “Buddy” Hardiman is being promoted to senior vice president of retail and direct sales. 

Hardiman has been with the company for more than a decade. He began his career at Embrace in 2008 as a project manager. He went on to serve in various roles before being promoted to vice president of sales strategy and recruiting in 2016. 

Now, Hardiman will lead the direct sales team.

“Buddy has been instrumental in shaping many of our initiatives designed to deliver the most productive sales force in the industry,” said chief sales officer Jeffrey McGuiness. “He has delivered great results on everything from data and analytics that allow for better business decisions to sourcing and vetting new technologies that make our sales professionals more efficient, to implementing ways to create a more memorable customer experience. Buddy’s promotion is well-deserved.”

In addition to leading the direct sales team, Hardiman will also be tasked with aiding Embrace Home Loans’ transition to new technologies to improve the overall digital customer experience. He will also continue his work spearheading the initiatives currently underway on the company’s retail platform.

“This promotion is a great honor,” Hardiman said. “I look forward to helping to further Embrace Home Loans’ continued growth and its initiatives to enhance the borrower experience even more.”

Wells Fargo settles allegations of discriminating against female, African American job applicants

A federal investigation found that Wells Fargo discriminated against thousands of African American and female job applicants based on their race and/or gender, the Department of Labor said this week.

The Labor Department announced this week that it reached a
settlement with Wells Fargo over allegations of discrimination within bank’s
hiring practices at locations in Arizona, Virginia, and Utah.

According to the Labor Department’s Office of Contract Compliance Program, an investigation found that in 2014, Wells Fargo’s Phone Bank Premier, Home Equity & Online Customer Service unit discriminated against 2,066 female applicants for positions as online customer service representatives in Glen Allen, Virginia, and Salt Lake City.

Additionally, the investigation found that Wells Fargo discriminated against 282 African American applicants for phone banker positions in Phoenix.

In doing so, Wells Fargo failed to comply with Executive
Order 11246, which prohibits race and sex discrimination by federal
contractors, the Labor Department said.

As part of the settlement with the Labor Department, Wells
Fargo will pay $603,612 in back wages, interest and benefits to the affected
applicants, but does not admit liability in the matter.

Wells Fargo must also make job offers to 66 of the original
applicants (17 in Glen Allen, Virginia, 20 in Salt Lake City, and 29 in Phoenix)
as positions become available.

Beyond that, Wells Fargo must “review and revise its
selection process and provide better training to its hiring managers to
eliminate practices that resulted in the violations,” the Labor Department
said.

“Companies that accept federal contracts must monitor their
hiring processes to ensure applicants are not rejected based on unlawful
practices,” Office of Federal Contract Compliance Programs Regional Director
Michele Hodge added.

As the Labor Department noted, Wells Fargo did not admit liability
as part of the settlement. In fact, the bank “strongly disputes” the Labor
Department’s allegations.

“We are pleased to reach this agreement with the OFCCP.
While Wells Fargo strongly disputes the allegations, we believe that putting
this matter behind us is in the best interest of all of our stakeholders,” a Wells
Fargo spokesperson said in statement.

“The settlement relates to hiring practices that were in
place five years ago. We have made fundamental changes to our hiring practices
and processes to better identify successful employees and to ensure adherence
to equal employment opportunity laws,” the spokesperson continued. “We are
dedicated to recruitment and career development practices that support our team
members and promote diversity in our workforce at all levels of our company.
Wells Fargo values and promotes diversity and inclusion in every aspect of our
business.”

The settlement is the second legal issue for the bank in the
last few days.

Wells Fargo also recently revealed that it set aside $1.6 billion to cover the cost of another potential settlement over the bank’s fake account scandal.

Mortgage Tech Rundown: DocMagic, Loan Vision, and ZestFinance

Mortgage Tech Rundown looks
at the latest news in mortgage technology, featuring new product updates,
integrations and announcements.

DocMagic, a provider of eMortgage services, launched a new mobile application that aims to provide borrowers with a transparent way to stay fully engaged with their loans — and lenders — throughout the mortgage cycle.

The application, LoanMagic,
includes real-time loan status, document uploads, eSigning, integrated
messaging and more. Notably, it is provided free to all DocMagic customers and leverages
a backend platform that delivers full interoperability with DocMagic solutions,
as well as other third-party mortgage software, according to the company.

 “Bringing mobile functionality to borrowers and enabling lenders to connect with their customers is the end goal of most mobile applications in our industry — but at DocMagic, it is just the beginning,” says Dominic Iannitti, president and CEO of DocMagic. “LoanMagic isn’t an add-on. It’s a fully interoperable technology that fills a critical gap in the digital mortgage process. It is just as powerful as any of our flagship and award-winning technology.”

Loan Vision, a provider of financial management
and accounting solutions to mortgage banks, debuted two new functionalities for
their Quick Close tool.

The Quick Close Tool was designed to give customers more control, thus helping them reduce time spent in the month-end accounting closing process. The new updates, which are a system enhancement and the addition of Loan Vision’s new Budget & Forecasting Module, have just finished Beta testing and are ready to be deployed.

In a press release, the company explained that the Budget & Forecasting tool aims to provide lenders with a more streamlined process, especially for those who are forecasting manually but aren’t ready to make a substantial investment in dedicated software.

ZestFinance, an artificial intelligence software company
for the finance industry, announced an integration with MeridianLink,
a multichannel loan and new account origination platform.

According to
the company, MeridianLink will integrate Zest Automated Machine Learning credit
scoring directly into its LoansPQ platform, therefore providing MeridianLink
clients with access to advanced machine learning for lending.

“Our
integration with MeridianLink removes the resource and risk constraints that
have made machine learning technologically challenging for lenders,” said Jay
Budzik, CTO of ZestFinance. “The partnership will increase the adoption of
machine learning and give more consumers access to fair credit.”

Supreme Court to take on CFPB constitutionality case

The Supreme Court announced Friday it will take on the case challenging the constitutionality of the Consumer Financial Protection Bureau’s leadership.

Back in 2017, a battle between the CFPB and PHH began,
starting with a $103 million increase to a $6 million fine initially
levied against PHH for allegedly illegally referring consumers to mortgage
insurers in exchange for kickbacks.

PHH challenged this ruling in court, and the fight ended, or
so it appeared, with the CFPB’s leadership structure being declared unconstitutional by the Court of
Appeals for the District of Columbia Circuit in a 2-1 vote.

The CFPB fought that ruling, asking the court to rehear the
case en banc, meaning that it wanted the entire court to hear the case, rather
than the three judges who ruled on the case previously.

And now the Supreme Court has agreed to take on the case.

As it stands now, President Donald Trump cannot fire the
CFPB director unless it’s for cause. The previous decision made the CFPB
director fireable at will, but that’s not the case anymore as the case
continues to be challenged in court.

But now even CFPB Director Kathy Kraninger is siding against her own bureau, saying, “The bureau should adopt the Department of Justice’s view that the for-cause removal provision is unconstitutional.”

As expected, Democrats have not been pleased with Kraninger’s
stance on the issue. In the semi-annual hearing for the bureau Wednesday, Rep.
Maxine Waters, D-Calif., brought up the issue.

“You have forced the Consumer Bureau to abandon its
longstanding defense of the constitutionality of the agency’s structure,”
Waters said.

And consumer groups are nervous about the hearing, saying the newest justice should recuse himself from the case because he has “demonstrated bias.”

“Justice Kavanaugh has demonstrated bias against the CFPB on these exact issues and must recuse himself from this case,” Allied Progress Director Derek Martin said. “He has previously weighed in on the specific question at stake in this matter – whether the CFPB director can be fired without cause. This case deserves to receive truly impartial judgment.”

But the housing industry was happy with the news, and some
are even hoping this will lead to a board of people overseeing the CFPB, rather
than one director.

“CUNA has consistently advocated for legislation that
provides for a multi-person, bipartisan commission to lead the bureau, as was
originally proposed by the Obama administration in 2009,” said Ryan Donovan, Credit Union National Association chief
advocacy officer. “A commission is better for consumers because it would enhance
the independence of the bureau, bring diverse perspectives to the policymaking
table, ensure greater stability, and be more consistent with our country’s
democratic principles.”

“We thank the Supreme Court for agreeing to consider the
constitutionality of the CFPB’s current structure and intend to represent
credit unions’ views before the court,” Donovan said.

The National
Association of Federally-Insured Credit Unions
agreed the CFPB should be overseen
by a board.

“Regardless of how the Supreme Court rules – NAFCU still
believes that a commission structure at the CFPB is absolutely essential to
ensuring greater transparency and accountability,” NAFCU President and CEO Dan
Berger said. “A commission would allow for more open debate, diversity of
thought and a stable leadership structure that would better serve consumers in
the long-run.”