CFPB's structure is constitutional, appeals court rules

Decision rejects GOP's claim that director of consumer bureau is too powerful

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

D.C. Court

In a decision that may be headed to the Supreme Court, a federal appeals court today affirmed the U.S. Consumer Financial Protection Bureau’s structure, saying its director does not have unconstitutional power.

The decision rejected a challenge that said the agency director’s protection from being fired by the president conflicts with the executive’s role.

“Congress’s decision to provide the CFPB director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will,” Circuit Judge Cornelia Pillard wrote in the majority decision by the District of Columbia Circuit Court of Appeals. The CFPB director can be fired only for cause by the president during the director’s five-year term.

The 7-3 decision, which reversed an earlier ruling by a three-judge panel of the court, sent legal questions in the case involving mortgage company PHH Corp. back to the agency for further consideration.

Consumer advocates welcome decision

Consumer advocates called the constitutional decision a win for consumers, who need an independent CFPB to protect them from politically powerful banks and financial services.

“The court’s decision upholds the critical importance of having a director who is focused on protecting consumers and righting wrongs in the financial marketplace, not catering to well-heeled interests,” National Consumer Law Center Associate Director Lauren Saunders said in a statement.

But the decision only partly clears the confusion surrounding the consumer protection bureau, which is involved in a separate court battle over the legitimacy of its acting director, John Michael “Mick” Mulvaney.

Deputy Director Leandra English is challenging Mulvaney’s appointment on grounds that it contradicts succession language in the Dodd-Frank Act. English has taken the case to the D.C. Circuit Court of Appeals, having lost at the district court level.

"The court’s decision upholds the critical importance of having a director who is focused on protecting consumers and righting wrongs in the financial marketplace, not catering to well-heeled interests."

Impact of decision on bureau’s independence unclear

Although Wednesday’s decision affirms the agency’s independence, Mulvaney answers directly to the president in his other job as director of the White House Office of Management and Budget. That makes the practical effect of the decision murky.

“President Trump needs to end lobbyist influence at the consumer bureau by properly nominating a director who can be confirmed by the Senate and who has a strong track record of consumer protection work and independence from the financial industry,” Saunders said in her statement.

Under Mulvaney since Nov. 27, the CFPB has stopped filing enforcement actions against companies, delayed the rollout of prepaid card regulations, frozen payments from a civil penalty fund and requested a $0 budget for the second quarter of 2018, saying its current funds are sufficient.

Case could head to Supreme Court

The U.S. Justice Department, which argued on PHH’s side against the agency’s current structure, may appeal Wednesday’s decision, legal experts said.

“If the SG [solicitor general] sticks with its current litigating position and seeks review, odds are good that the Supreme Court weighs in,” University of Michigan Law professor Nicholas Bagley wrote on Twitter. Bagley previously worked in the Justice Department’s civil division.

"Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection."

Calls for bipartisan solution to CFPB leadership questions

The industry group Consumer Bankers Association said that the single-director structure isn’t appropriate for the bureau’s long-term credibility, whether it is constitutional or not.

“Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection,” CBA President Richard Hunt said in an emailed statement.

Republican leaders in Congress had proposed a bipartisan commission structure, mirroring the structure of the Federal Trade Commission, which also has a consumer protection role. But that idea was dropped from the GOP legislative Choice Act proposal after Donald Trump’s election gave him authority to name the bureau’s director.

Former agency director Richard Cordray, an Obama appointee who left in November to run for governor of Ohio, applauded the ruling. “[T]oday’s decision is all about maintaining independent law enforcement free from politics,” he wrote on Twitter.

Judges question CFPB director’s unilateral powers

In a dissenting opinion, two judges argued that the CFPB director’s powers are excessive.

“The director alone may decide how to enforce, when to enforce, and against whom to enforce the law,” Brett Kavanaugh and A. Raymond Randolph wrote. “Indeed, other than the president, the director enjoys more unilateral authority than any other official in any of the three branches of the U.S. government.”

While the ruling is being called a blow to the Trump administration, Judge Kavanaugh has pointed out that the situation is more complicated than a box score.

With the director’s post vacant, the president has authority to appoint a successor who – once confirmed by the Senate – would serve for a five-year term, potentially well past Trump’s time in office.

Kavanaugh, during arguments in the case in May, posited that a deregulation-oriented Trump appointee could serve under an ideologically opposed successor – hypothetically, such as consumer rights firebrand Sen. Elizabeth Warren.

The director, protected from firing, could carry out policies opposed by the president, contradicting the will of voters who select the chief executive, he argued.

The case brought by mortgage company PHH Corp. involves the size of a multimillion-dollar fine it faces for sending customers to a mortgage insurance company that it owned.

The appeals court said the CFPB administrative law process erred in determining that the agency was not subject to statutes of limitations that apply in court. The agency is to reconsider the fine.

In a statement, PHH Corp. said it would continue to contest the CFPB’s fine, if necessary, but did not say it would appeal the decision on constitutionality to the Supreme Court. 

See related: Judge lets Trump appointee remain as CFPB head, Trump appointee promises 'dramatically different' CFPB


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Updated: 07-16-2018