Judges rule CFPB independent, structure constitutional

A panel of federal appeals court judges has ruled that the structure of the Consumer Financial Protection Bureau (CFPB) is constitutional, overturning an earlier decision in the U.S. Court of Appeals for the D.C. Circuit, and that the consumer protection bureau is an “independent” agency.

The decision could set the stage for an appeal to the Supreme Court.

“Because we see no constitutional defect in Congress’s choice to bestow on the CFPB Director protection against removal except for ‘inefficiency, neglect of duty, or malfeasance in office’, we sustain it,” the panel of judges wrote in their decision, referring to the agency’s structure.

The 7-3 decision issued by the 10 members of the D.C. Circuit appeals court panel, sitting “en banc” (meaning appeals judges from within the circuit), found that the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) shielding the Director of the CFPB from removal without cause is “consistent with Article II” of the U.S. Constitution.

“The Supreme Court 80 years ago sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB,” stated the court’s decision, written by Judge Nina Pillard for the majority. “In doing so, the Court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the President. The Court has since reaffirmed and built on that precedent, and Congress has embraced and relied on it in designing independent agencies.”

The panel was reviewing an Oct. 11, 2016 decision (CFPB v. PHH) by a three-judge panel of the appeals court that overturned a lower court decision. The appeals court panel ruled that the single-director structure of the CFPB as devised is unconstitutional, representing too great a concentration of executive power – and that the director, consequently, must serve at the will of the president (and not be subject for removal only “for cause”).

That court also ruled that CFPB, going forward, could no longer be considered an independent agency.

In February 2017, the CFPB was granted the “en banc’ review by the appeals court. Since then, the director of the agency (Richard Cordray, appointed by President Barack Obama), has stepped down. President Donald Trump in November tapped Mick Mulvaney as acting director.

In a statement, House Financial Services Committee Chairman Jeb Hensarling (R-Texas), a frequent critic of the CFPB under the Obama administration, said he was disappointed by the decision and that hoped the Supreme Court will review the ruling in short order.

“Even though I have total confidence in Acting Director Mulvaney’s vision, the fact remains that no one person in America – especially someone who is unelected – should have the authority to unilaterally control whether working Americans can get a mortgage or a checking account,” he said. “The Bureau’s consumer protection mission is important, but no government agency – no matter how well-intentioned – should be able to evade common sense checks and balances that are necessary for accountability.”

Meanwhile, the firm that brought the original lawsuit against CFPB (PHH Corp.) gave no indication it intended to appeal to the Supreme Court. In a statement, the company focused solely on its original claim in the case regarding fees for mortgage reinsurance. Since the decision leaves intact a lower court decision which removed a multi-million dollar fine assessed against the company by the bureau, it is less likely that it will, according to some reports.

“The decision by the full D.C. Circuit Court of Appeals to uphold the panel’s ruling to overturn former Director Cordray’s decision under RESPA with respect to our former mortgage reinsurance activities, which includes vacating the $109 million penalty, is an important and gratifying outcome for PHH and the industry,” the company stated. “We continue to believe that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects. Regarding the remand, we will continue to present, if necessary, the facts and evidence to support our position that mortgage insurers did not pay more than reasonable market value to PHH affiliated reinsurers.”

‘En banc’ decision in appeal of PHH v. CFPBCFPB Case