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CFPB Ruled Constitutional—What Now?

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In a split decision, a Washington appeals court has reversed a previous ruling, declaring the structure of the Consumer Financial Protection Bureau to be constitutional after all.

The Court of Appeals for the District of Columbia Circuit ruled Wednesday that the CFPB's structure is constitutional and that the director of the agency can only be fired by the president for “inefficiency, neglect of duty, or malfeasance in office.”

The court's ruling reads, in part, "None of the theories advanced by PHH supports its claim that the CFPB is different in kind from the other independent agencies and, in particular, traditional independent financial regulators."

On the subject of whether the CFPB director can be removed by the president without cause, the ruling reads, "The CFPB’s authority is not of such character that removal protection of its Director necessarily interferes with the President’s Article II duty or prerogative. The CFPB is neither distinctive nor novel in any respect that calls its constitutionality into question. Because none of PHH’s challenges is grounded in constitutional precedent or principle, we uphold the agency’s structure.”

Brianne Gorod, Chief Counsel for the Constitutional Accountability Center, said in a statement, "Members of Congress believed, and still believe, that it is critical to the mission of the CFPB that it remain independent of the President, so it can act promptly and decisively in response to new threats to consumers. The D.C. Circuit today made it clear: that leadership structure is constitutional, and arguments to the contrary are wholly without merit.”

Richard Hunt, CEO and President of the Consumer Bankers Association, said of the ruling, "Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the Bureau’s mission of consumer protection. " In his statement, Hunt said that this change would " ... establish transparency, diversity of thought, additional industry insight, and rule-makings beneficial to consumers, the industry, and the economy."

The court's previous ruling in October 2016 stated that the CFPB's leadership structure was unconstitutional and that it granted the agency's director too much power. That October 2016 ruling stated, "Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency."

The case traces its origins back to $109 million in CFPB fines levied against New Jersey-based mortgage company PHH Corp. in 2015, which the mortgage company fought. The October 2016 ruling had also canceled these fines. The ruling is expected to be appealed by both the Trump administration and PHH.

About Author: David Wharton

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