Appeals court overturns previous decision and affirms CFPB structure


The decision has arrived. The current structure of the Consumer Financial Protection Bureau is constitutional, according to the latest federal court action.

On Wednesday, the en banc review by the D.C. Circuit Court of Appeals surfaced, and the majority opinion declared that the CFPB structure can stand.

This case stems from a $109 million penalty levied by the CFPB against PHH Corp. for violations of the Real Estate Settlement Procedures Act (RESPA). The review overturns a previous decision by a portion of this court’s judges who called the CFPB “unconstitutionally structured” in October 2016.

“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,” Judge Cornelia Pillard wrote for the majority opinion.

“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,” Pillard continued.

Pillard explained that PHH’s challenge was too narrow to declare the CFPB unconstitutional as a portion of the appeal court previously determined.

“Wide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions. 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,” Pillard wrote.

“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. Because we see no constitutional defect in Congress’s choice to bestow on the CFPB director protection against removal except for ‘inefficiency, neglect of duty, or malfeasance in office,’ we sustain it,” she went on to write.

Meanwhile, Judge Karen Henderson wrote the dissenting opinion and did not hold back.

“Under the United States Constitution, all of the federal government’s power derives from the people. Much of that power has been further delegated to a warren of administrative agencies, making accountability more elusive and more important than ever,” Henderson wrote.

“Nowadays we the people tolerate bureaucrats ‘poking into every nook and cranny of daily life,’ on the theory that if they exercise their delegated power unjustly, inexpertly or otherwise at odds with the popular will, we can elect legislators and a president who will take corrective action (underscoring that while agencies are not directly accountable to the people, they report to political actors who are),” she continued.

“But consent of the governed is a sham if an administrative agency, by design, does not meaningfully answer for its policies to either of the elected branches. Such is the case with the Consumer Financial Protection Bureau (CFPB),” Henderson went on to write.

The next paragraph of Henderson’s opinion showed the judge was getting started.

“The CFPB, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is an agency like no other. Its director has immense power to define elastic concepts of unfairness, deception and abuse in an array of consumer contexts; to enforce his rules in administrative proceedings overseen by employees he appoints; to adjudicate such actions himself if he chooses; and to decide what penalties fit the violation,” Henderson wrote.

“The director does all that and more without any significant check by the president or the Congress. Dodd-Frank gives the director a five-year tenure — thereby outlasting a presidential term — and prohibits the president from removing him except for cause. At the same time, the statute guarantees the CFPB ample annual funding from the Federal Reserve System, outside the ordinary appropriations process. It thus frees the agency from a powerful means of Presidential oversight and the Congress’s most effective means short of restructuring the agency,” she continued.

“Finally, the director is unique among the principal officers of independent agencies in that he exercises vast executive power unilaterally: as a board of one, he need not deliberate with anyone before acting,” Henderson went on to write.

The entire 250-page court document .

Editor’s note: Watch for an upcoming report containing reaction from legal experts, lawmakers and industry leaders about this decision.


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