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04.05.17

States Square off in Fight over CFPB Leadership Structure

The CFPB has some new friends in its fight to preserve its leadership structure. A group of 17 states, plus the District of Columbia, has sided with the agency as it fights a court ruling that says the president should have the authority to fire the head of the CFPB.

Meanwhile, 15 other states have taken an opposing stance.

The pro-CFPB amicus brief, filed in the U.S. Court of Appeals for the District of Columbia Circuit, comes in advance of a scheduled May 24 en banc hearing in the case, PHH Corp. et al  v. CFPB. The agency wants to reverse an 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 came from a three-judge panel of the D.C. court and 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.

But those 17 states and Washington, D.C., disagree with the ruling. It “eliminates the CFPB director’s independence from presidential control,” which would harm “the states’ consultations with the CFPB” because the agency’s leadership would be subject to “shifting political winds.” The 30-page brief goes on to argue that the agency’s work and decisions are “intended by Congress to be insulated from political influence.”

The parties to the amicus brief are: Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.

States against CFPB Structure

Not all states, however, are on the CFPB’s side. Fifteen other states have filed their own brief arguing that the CFPB leadership enjoys “essentially unchecked administrative powers.” Those states are: Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Nevada, Oklahoma, South Dakota, Texas, West Virginia and Wisconsin. Their brief argues that that “CFPB possesses the power to preempt or displace broad swaths of state regulatory authority … without undertaking the careful deliberative processes that would be required of the elected branches of the federal government or of an independent agency headed by a multi-member board.”

Late last month, the CFPB officially lost the support of the U.S. Department of Justice in this fight. In an amicus brief filed with the D.C. Circuit Court of Appeals on March 17, the DOJ argued that the president should have the authority to fire the head of the CFPB, but stopped short of calling for the bureau’s leadership format to be changed.

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