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CFPB Fights Court’s Ruling that Its Structure Is Unconstitutional

The CFPB has filed a motion for a rehearing before the entire appellate court after a three-judge panel of the D.C. Circuit Court of Appeals sent shockwaves in October when it determined the structure of the bureau is unconstitutional because it’s led by a single director who can only be removed by the president for just cause.

“A panel of this court has rendered a dramatic and unprecedented ruling that purports to override Congress’ explicit determination to create ‘an independent bureau’ to exercise regulatory and law enforcement authority in a particular segment of the economy,” according to the CFPB’s motion filed Nov. 18.

In the decision handed down Oct. 11, the court called the CFPB’s structure a “gross departure from settled historical practice” in which independent agencies are led by commissioners or board members. However, the CFPB asserts that the court’s decision contradicts Humphrey’s Executor v. United States, “which has long been understood to ‘bless Congress’ creation of the so-called independent agencies where at least one individual is appointed by the president to a full-time, fixed-term position with the advice and consent of the Senate and has protection against summary removal by some form of for-cause restriction on the president’s authority.’”

The appellate court’s decision stems from a $109 million enforcement action issued by the CFPB in 2015 against mortgage servicer PHH Corp., alleging kickbacks in exchange for real estate referrals, which is in violation of the Real Estate Settlement Procedures Act (RESPA). The federal appeals court last month threw out the $109 million order against PHH, sending the matter back to the CFPB for review. The CFPB’s motion argues that the court misinterpreted portions of RESPA.

Although the court of appeals declared the CFPB’s structure unconstitutional, it’s allowing the agency to continue operating, with the caveat that the director, currently Richard Cordray, can be removed by the president at will, not for just cause. The court also noted that the CFPB will operate “as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury.”

The appeals court’s decision to allow the CFPB to continue operating in essentially the same manner might mean little following the Nov. 8 election, which resulted in Donald Trump being elected president and Republicans maintaining control of Congress. Since the elections, Republican legislators and industry trade groups have shown an increased zeal to overhaul the CFPB, an agency that’s been the target of conservatives since the Dodd-Frank Act created it.

Several lawmakers already drafted legislation that would make wholesale changes to the agency, such as Rep. Jeb Hensarling (R-Texas), who introduced the Financial CHOICE Act (HR 5983) in September. The legislation would eliminate Cordray’s position, replacing it with a bipartisan, five-member commission; make the commission subject to congressional oversight and appropriations; require the commission to obtain permission before collecting personally identifiable information on consumers; repeal its authority to ban bank products or services it deems abusive and annul its authority to prohibit arbitration.

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