CFPB Wins What Could be a Hollow Victory

There was a partial win for the plaintiff in there somewhere, but the District of Columbia Circuit Court of Appeals reversed its earlier decision on Wednesday, and slapped back the premise behind the PHH Corp's suit against the Consumer Finance Protection Bureau (CFPB). The decision, in part, ruled that the single director structure of the Bureau is constitutional, and that the President can only remove that director for cause.

PHH had sued CFPB to recover a $109 million penalty the Bureau had levied against it for alleged misconduct.  In October 2016, the same court, in a 2-1 vote, ruled the Bureau's leadereship structure unconstitutional. It also vacated the fine, while saying the latter issue should be revisited.

CFPB, as established by Congress via the Dodd-Frank Wall Street Reform and Consumer Protection Act, has a single director, appointed by the President and confirmed by the Senate; and receives its funding through the Federal Reserve, outside of Congressional appropriation authority.  The law also prevents the President from firing the director absent cause. The law's intent, according to former Representative Barney Frank, its co-author, was to insulate the agency from political influence.

Jude Nina Pillard, writing the decision for the court which was sitting in full session, said "Applying binding Supreme Court precedent, we see no constitutional defect in the statute preventing the president from firing the CFPB director without cause.

"Congress's decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will. We have no warrant here to invalidate such a time-tested course," she continued.

The decision went on to say, "The threat PHH's challenge poses to the established validity of other independent agencies, meanwhile, is very real. PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies-whether collectively or individually led-that, if accepted, would broadly transform modern government."

The judge who had written the earlier opinion, Brett Kavanaugh, also wrote Wednesday's dissent.  He argued that independent agencies should be in the charge of multimember boards, saying that the CFPB's structure constituted, in effect, "a headless fourth branch of the U.S. government. They hold enormous power over the economic and social life of the United States. Because of their massive power and the absence of presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances."

The decision left in place the part of the earlier one in which the court said CFPB erred in its interpretation of the Real Estate Settlement and Procurement Act (RESPA) under which PHH was penalized.  PHH can continue to appeal the fine.

The effect of CFPB's vindication may be moot.  The agency's first director, Richard Cordray, resigned in late 2017 and, under a succession plan outlined in Dodd-Frank, appointed his deputy director, Leandra English, as acting director.  President Trump overruled this action, appointing Office of Management and Budget director Mick Mulvaney, to the temporary position. English has sued, but lost early court battles. The issue is under appeal and Trump has yet to appoint a permanent head.

It is probable that Congress, following this decision, will again revisit the issue of restructuring the CFPB.