Appeals court rules consumer bureau’s structure is constitutional

Language in the Dodd-Frank Act that gives the Consumer Financial Protection Bureau’s (CFPB) independence from Congress is constitutional, the U.S. Court of Appeals for the District of Columbia Circuit ruled Wednesday, overturning a 2016 ruling by three of the court’s judges.

In a review of the court’s previous decision, PHH v. CFPB, the full court held that the bureau can exist as an independent agency with a sole director who can only be fired by the president for “inefficiency, neglect of duty, or malfeasance.”

Judge Nina Pillard, who wrote the court’s opinion, cited the precedent set by Humphrey’s Executor v. United States, a 1935 case reaffirming the legality of the Federal Trade Commission’s independent, sole-director structure.

{mosads}“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,” Pillard wrote.

“We follow that precedent here to hold that the parallel provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act shielding the Director of the CFPB from removal without cause is consistent with Article II,” she wrote.

The full court’s 6-3 vote to overturn the 2016 decision preserves the structure of the CFPB as laid out in Dodd-Frank, handing a victory to the bureau’s supporters.

PHH, a mortgage lender, sued the CFPB in 2015 over a $103 million fine the bureau issued. Their suit challenged not only the legality of the fine, but also the constitutionality of the bureau’s leadership structure.

A D.C. Circuit panel held in 2016 that the CFPB’s structure violated limits on executive power and that the fine was inappropriate on the merits. The Justice Department backed PHH in the case, reversing the department’s position under President Obama.

The court’s Wednesday decision upholds the ruling against the fine, but protects the bureau’s legal foundation.

Former CFPB Director Richard Cordray called it “an important ruling” that “vindicates the independence of the CFPB.” 

“It’s a good day for America,” Corday told The Hill, praising the court for protecting the agency he set up in 2013 as the founding director.

Cordray said he wished the case could have spent more time on the issue of whether the fine against PHH was legal, but believes arguments over the bureau’s structure became the bigger focus.

Pilard called PHH’s challenge to the CFPB structure a “wholesale attack on independent agencies.”

“The constitutional distinction PHH proposes between the CFPB’s leadership structure and that of multi-member independent agencies is untenable,” Pillard wrote. “That distinction finds no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power.”

The opinion comes as progressives and conservatives clash over the future of the CFPB, now run by Office of Management and Budget Director Mick Mulvaney.

Mulvaney has taken several steps to rein in the CFPB’s regulations and its oversight of the financial sector, drawing criticism from liberals who say he is effectively shutting down the agency.

Wednesday’s ruling gives Mulvaney a clear path to continue reshaping the CFPB, as he will retain his power as acting director. Cordray said the ruling is important to the future of the bureau, even if it gives Mulvaney cover to unwind his legacy. 

“There were always going to be ebbs and flows over what I have faith will be the long history of the CFPB,” Cordray said. “The agency will go forward.”

Liberal groups that were aligned with Cordray’s CFPB praised the ruling while panning Mulvaney’s agenda.

“This isn’t just a victory for the Consumer Financial Protection Bureau, this is a victory for consumers everywhere,” said Karl Frisch, executive director of progressive nonprofit Allied Progress. “While this case is an important victory, the fight continues to protect consumers and defend the mission of the CFPB to hold big banks, predatory lenders, and other financial bad actors accountable.”

Banking and financial services industry trade groups criticized the ruling and called for the CFPB director to be replaced with a bipartisan commission, a longstanding goal for the sector.

“While the court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the Bureau’s long-term credibility,” said Richard Hunt, president of the Consumer Bankers of America, a major banking trade group. “Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the Bureau’s mission of consumer protection.”

Dan Berger, president of the National Association of Federally Insured Credit Unions, renewed his industry’s call to be exempted from CFPB oversight all together.

“Our view on that has not changed. We will continue to push for the bureau to exempt credit unions from current and future rulemakings,” Berger said.

Updated at 12:42 p.m.