Full DC Circuit Rules CFPB Structure Constitutional
By a vote of 7-3, an en banc D.C. Circuit Court ruled that the structure of the Consumer Financial Protection Bureau (CFPB) is constitutional, overturning a panel decision last year that found the CFPB’s director must be fireable “at will” by the President to conform with the U.S. Constitution.
Perhaps the biggest legal saga in consumer finance in 2017 was the debate in the DC Circuit Court over the structure of the CFPB. PHH Corporation, a mortgage lender, challenged the imposition of fines for violations of the Real Estate Settlement Procedures Act made unilaterally by the CFPB’s former director, Richard Cordray, after the statute of limitations had run out.
Back in late 2016, a three-judge panel from the DC Circuit ruled the structure of the CFPB was unconstitutional and a “threat to individual liberty.” The panel explained, “the CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision making and abuse of power.”
Shortly thereafter, the DC Circuit agreed to rehear the case en banc before the entire cadre of judges at the court. The en banc collection of circuit court judges reheard the arguments in the case in May. While the CFPB maintained that its single director structure was lawful and should remain in tact, PHH took the position that the Bureau should be abolished in its entirety. The en banc group appeared mostly divided during oral arguments.
PHH is likely to appeal the circuit’s decision to the U.S. Supreme Court. As noted by Law360, the CFPB may struggle before America’s highest court, since the agency does not have permission to argue cases to the Supreme Court and the Trump Administration has more recently sided against the agency’s structure in court. The circuit’s decision should insulate the Bureau’s activities from partisan attacks, unless Congress votes to alter the agency’s structure in Dodd-Frank or bring it under the appropriations process.
