Full D.C. Appeals Court Rules CFPB Structure is Constitutional

The full U.S. Court of Appeals for the District of Columbia ruled today that the leadership structure of the Consumer Financial Protection Bureau is constitutional, overturning an earlier decision issued by three of the court’s judges back in 2016.

The case, PHH v. Consumer Financial Protection Bureau, has been closely watched since the initial Appeals Court ruling in 2016 deemed the leadership structure — a single director who can be fired only for cause — unconstitutional.

The court voted 8-3 to overturn the earlier ruling. The ruling is expected to be appealed to the Supreme Court.

A copy of the court’s ruling can be accessed here. In reaching its decision, the Appeals Court used a Supreme Court case, Humphrey’s Executor v. United States, after President Franklin Roosevelt fired a commissioner of the Federal Trade Commission, only to have the Supreme Court rule the firing improper because firings could only occur in cases of “inefficiency, neglect of duty, or malfeasance in office.”

“There is nothing constitutionally suspect about the CFPB’s leadership structure,” wrote Judge Nina Pollard, who authored the majority’s opinion. “And, if anything, the Bureau’s consolidation of regulatory authority that had been shared among many separate independent agencies allows the President more efficiently to oversee the faithful execution of consumer protection laws. Decisional responsibility is clear now that there is one, publicly identifiable face of the CFPB who stands to account — to the President, the Congress, and the people — for all its consumer protection actions. The fact that the Director stands alone atop the agency means he cannot avoid scrutiny through finger-pointing, buck-passing, or sheer anonymity.”

The case originally stems from a $109 million fine assessed by the CFPB on PHH Mortgage for alleged kickbacks. PHH responded by suing the CFPB, alleging that the agency’s leadership structure was unconstitutional, among other charges.

A three-judge panel for The Court of Appeals for the District of Columbia ruled in favor of PHH in 2016, saying that only allowing the president to fire the agency’s director for cause was unconstitutional. The CFPB requested an en banc hearing, before the Court’s full slate of judges, which was held last May. PHH had argued that the CFPB should be dissolved because of its unconstitutional leadership structure. Most federal agencies have a number of commissioners and one chairman. The CFPB is run by a single executive director.

Republicans had lauded the original ruling in 2016, because it gave newly elected president Donald Trump the power to fire then-director Richard Cordray for any reason. But President Trump never fired Cordray, who resigned last November. Ironically, Republicans may now be happy with the new ruling, allowing the president to nominate a permanent director to a five-year term who will not be able to be fired, even if President Trump loses the 2020 election.

Judge Brett Kavanaugh, who authored the original opinion in the 2016 ruling, was one of the dissenters in today’s ruling.

“Because the CFPB is an independent agency headed by a single Director and not by a multi-member commission, the Director of the CFPB possesses more unilateral authority – that is, authority to take action on one’s own, subject to no check – than any single commissioner or board member in any other independent agency in the U.S. Government,” Judge Kavanaugh wrote. “Indeed, other than the President, the Director enjoys more unilateral authority than any other official in any of the three branches of the U.S. Government.”



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