The CFPB is facing assaults on many fronts as we reported in our last issue of Pay Gov, but the bureau may have new life after a federal appeals court granted the consumer watchdog’s request to revisit an earlier decision that its leadership structure is unconstitutional.
On Feb. 16, the U.S. Court of Appeals for the District of Columbia Circuit said it would grant the CFPB’s request for an en banc hearing re-examining the court’s October 2016 ruling that the CFPB is unconstitutionally structured because it’s an independent agency led by a single individual who can only be removed by the president for cause.
That ruling by a three-judge panel of the D.C. court stemmed from a challenge brought against the CFPB by mortgage servicer PHH Corp., which was fined $109 million by the agency in 2015 over alleged kickbacks in exchange for real estate referrals, a violation of federal law. The decision allowed the bureau to continue to operate, but put Director Richard Cordray’s leadership in jeopardy by ruling that the president could remove the agency’s director at will. The ruling also put a stay on the CFPB’s enforcement action against PHH.
In November 2016, the CFPB challenged the ruling, applying for the case to be reheard before 10 of the D.C. appellate court’s 11 judges, not including Chief Judge Merrick Garland—President Obama’s unsuccessful pick for the U.S. Supreme Court—who had recused himself from the case, due to his pending candidacy for the high court. With the CFPB’s request for an en banc hearing granted, the court’s previous ruling is vacated, and oral arguments in the rehearing are set for May 24.
Before hearing the case, the court is asking the CFPB and PHH to file briefs arguing whether or not the single-director leadership structure of the CFPB violates Article II of the Constitution, which gives the president supervisory power over executive agencies—and, “if not, is the proper remedy to sever the for-cause provision of the statute?” The government must file its brief by March 31, and PHH must respond by April 10.
Although the court’s decision to rehear the case is a win for the CFPB, the agency still faces uncertain waters. President Trump has targeted the Dodd-Frank Act—the law that created the CFPB—as a major culprit in what he has characterized as over-regulation that has curtailed economic growth. Though Trump has not commented specifically on the CFPB or Cordray directly, he has said he’s planning on “cutting a lot out of Dodd-Frank.” The president also met with former U.S. Rep. Randy Neugebauer before taking office, about Neugebauer potentially replacing Cordray at the helm of the bureau.
Meanwhile, Republican legislators continue to hammer away at the CFPB, with the latest challenge coming in the form of companion bills introduced by Texas Republicans Sen. Ted Cruz and Rep. John Ratcliffe on Feb. 14, both of which call for repealing Title X of the Dodd-Frank Act—the portion of the law that created the agency. A separate proposal, by Sen. Deb Fischer (R-Neb.), would replace Cordray’s position with a five-member board of directors appointed by the president and confirmed by the Senate.
- Federal Appeals Court Declares CFPB Structure Unconstitutional
- Appeals Court Denies Efforts to Defend CFPB in PHH Case
- When it Rains, it Pours for Embattled CFPB
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