WASHINGTON–The Consumer Financial Protection Bureau’s structure is unconstitutional, according to a ruling by the U.S. District Court of Appeals here. The 2-1 ruling, which came in the case PHH Corp. v. CFPB, is being hailed by both CU trade associations.
The court found the CFPB’s structure to be unconstitutional because it is headed by a single director—Richard Cordray—rather than a multi-member board. Credit unions have for several years been calling for Congress to make the change and install a five-person board.
The court’s ruling will not shut down the CFPB and, according to NAFCU will allow it to operate as a regular executive agency for the time being, which gives the president the power to remove and supervise the director.
“NAFCU urges an immediate moratorium at the CFPB on any rulemaking not already implemented. The Bureau should cease and desist all rulemakings until the legality is resolved,” said Dan Berger, CEO of NAFCU, which has always noted it was the only financial trade association to oppose subjecting credit unions to CFPB authority under Dodd-Frank.
The court’s ruling had been eagerly awaited by many after it was first argued in the Appeals Court in the District of Columbia in April. PHH, a Mt. Laurel, N.J.-based mortgage company, had asked the court to vacate a June 2015 enforcement ruling by the CFPB that said PHH violated anti-kickback provisions in Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) and as a result would have to give up $109 million in what CFPB Director Cordray said were ill-gotten mortgage reinsurance premiums.
While PHH challenged the CFPB on its interpretation of several aspects of RESPA, the far more important issue in the case has always been PHH’s arguments over the “unprecedented structure” of the CFPB and its “unaccountable director,” which PHH said violated the U.S. Constitution.
Critics of the CFPB in Congress and in credit unions have long had similar complaints, as the agency exists outside the standard appropriations process and no one has oversight authority when it comes to the CFPB, which was created in 2011 by the Dodd Frank Act.
“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,” the court said in its ruling.
Prior to the case being heard, the D.C. Circuit had ordered all parties to prepare for questions about independent agencies headed by a single director, and about possible remedies if the CFPB's structure is held unconstitutional. A separate case against the CFPB that was filed by a Texas bank that made many of the same Constitutional arguments has been on hold until the District Court’s ruling.
“I applaud the ruling from the U.S. Court of Appeals for the D.C. Circuit regarding the PHH case against the Consumer Financial Protection Bureau, in that it will establish a meaningful check and balance and bring needed accountability to the Director’s role,” said CUNA President and CEO Jim Nussle in a statement. “This ruling confirms CUNA’s concern that the structure of the CFPB is flawed and that an unchecked, independent director who answers to no one can’t lead to good public policy. CUNA continues to support a five-person commission for the CFPB instead of its current structure.
“CUNA supports legislation that would change the Bureau’s leadership to a five-person board, rather than a single director, believing that the change would bring additional accountability to credit unions and consumers and reduce ideologically driven regulatory burden,” Nussle concluded.
Not everyone is embracing the ruling. Immediately after the ruling, Karl Frisch, who heads up Allied Progress, which calls itself a “progressive issue advocacy organization,” said in a statement, “The plaintiffs in this case have been cheered on from the legal sidelines by the very same Wall Street special interests that instigated and profited from the financial crisis of 2007 and 2008, while millions of Americans were losing their homes and their retirement savings. The Consumer Financial Protection Bureau was created to hold these powerful financial institutions accountable – to make sure we never experience such a crisis ever again.
“In five short years, the CFPB has returned $11.7 billion to more than 27 million Americans harmed by the actions of credit card companies, big banks, debt collectors, payday and other predatory lenders. It’s no wonder Wall Street wants to kill this successful agency – their ability to rip off consumers has been greatly diminished,” said Frisch.
Frish added, “Judge Kavanaugh’s reckless, partisan decision was written to appease his cronies on Wall Street and the right-wing political movement where he got his start. We have no doubt that it will be reversed by a full panel of his colleagues on the D.C. Circuit.”