US agency won’t defend consumer watchdog

The Justice Department will not support the Consumer Financial Protection Bureau in a monumental court battle over whether the structure of the federal consumer watchdog is unconstitutional, according to court documents filed Friday.

The department also argued that the president should be able to remove the director of the independent agency at will, a shift that consumer advocates say could threaten the independent nature of the agency.

The current director is former Ohio Attorney General Richard Cordray.

Under the Dodd-Frank Act that created the agency, the director can be removed only for cause — setting a high bar for a president who wants to put new leadership in place. That approach was called into question last fall when a federal appeals court ruled in support of PHH Corp., a mortgage lender suing the CFPB to challenge an enforcement action.

In October, a three-judge panel ruled that the agency should be restructured so that the president can have the ability to fire the director at will.

That same court, however, threw out the ruling in February, when it granted the CFPB’s request to rehear the case, this time with the full panel of judges. Oral arguments for the case are scheduled for May 24.

In Friday’s amicus brief, the Justice Department compared the regulator to other independent agencies that are run by a commission with multiple members and concluded that the design of the CFPB may violate the constitution because it is run by a single director that the president cannot remove at will. “There is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the President’s executive policy,” the brief says.

The CFPB declined to comment. The agency has until March 31 to file another brief in the case.

The Justice Department’s move sets the stage for a rare showdown between two federal agencies in court.