Consumer Bureau's Structure Is Constitutional, Appeals Court Rules

In a break for creators of the Consumer Financial Protection Bureau, an appeals court on Wednesday reversed a previous ruling and declared the independent structure of the controversial agency to be constitutional.

The full U.S. Appeals Court for the District of Columbia Circuit overruled a September 2016 decision by its three-judge panel that had called the agency's structure unconstitutional because the director has wide-ranging power with little oversight. The case involves a New Jersey mortgage lender challenging a $109 million fine levied by the bureau.

Wednesday’s 5-3 ruling in PHH Corp. vs. CFPB, written by Judge Nina Pillard, attracted three concurring and three dissenting views. “The Supreme Court eighty years ago sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB,” she wrote, citing the 1935 case Humphrey’s Executor v. United States.

“In doing so, the court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the president. The court has since reaffirmed and built on that precedent, and Congress has embraced and relied on it in designing independent agencies,” as it did when it created the CFPB in the 2010 Dodd-Frank Financial Reform Act.

Liberal and consumer groups cheered the ruling. “This isn’t just a victory for the Consumer Financial Protection Bureau, this is a victory for consumers everywhere,” said Allied Progress executive director Karl Frisch. “The D.C. Circuit has soundly rejected attempts by Wall Street special interests to cripple the bureau by challenging its constitutionality. Equally important, the court has reaffirmed the CFPB’s independence from the Trump administration, rejecting the notion that a president should be able to replace the agency’s director without cause.”

The Consumer Bankers Association had a more complex reaction. “While the Court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the bureau’s long-term credibility,” CEO and President Richard Hunt said. Hunt had filed an amicus brief arguing that the structure is unconstitutional. “Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the bureau’s mission of consumer protection and [to] establish transparency, diversity of thought, additional industry insight and rule makings beneficial to consumers, the industry and the economy.”

The bureau remains mired in other court cases, including one that will decide whether President Trump’s appointment of budget director Mick Mulvaney as acting director passes muster.