Con­sumer watch­dog gets a re­prieve

Court to re­con­sider de­ci­sion that CFPB is un­con­sti­tu­tional

USA TODAY US Edition - - MONEY - Kevin McCoy @km­c­coynyc USA TO­DAY

A fed­eral ap­peals court Thurs­day agreed to re­con­sider its pre­vi­ous rul­ing that deemed the Con­sumer Fi­nan­cial Pro­tec­tion Bureau’s op­er­a­tional struc­ture un­con­sti­tu­tional.

Giv­ing the much praised and crit­i­cized reg­u­la­tory watch­dog a months-long re­prieve, the U.S. Cir­cuit Court of Ap­peals for the Dis­trict of Columbia va­cated the Oc­to­ber de­ci­sion by a three­judge panel and agreed that the court’s 11 ac­tive judges would re-hear the case May 24.

The ini­tial rul­ing said the CFPB’s lead­er­ship struc­ture — a sin­gle di­rec­tor loosely ac­count­able to the U.S. pres­i­dent and only re­mov­able for good cause — vi­o­lated con­sti­tu­tional and his­tor­i­cal prece­dents for fed­eral reg­u­la­tors.

De­cid­ing that the CFPB di­rec­tor had too much author­ity, the rul­ing changed the con­sumer watch­dog ’s struc­ture to have the di­rec­tor sub­ject to pres­i­den­tial re­moval for any rea­son.

That de­ci­sion voided a $109 mil­lion CFPB en­force­ment ac­tion against PHH, a mort­gage lender that chal­lenged the CFPB’s op­er­a­tional sys­tem. But the rul­ing stopped short of ap­prov­ing the com­pany’s le­gal de­mand for a full shut­down of the reg­u­la­tor cre­ated un­der Dodd-Frank Act safe­guards fol­low­ing the na­tional fi­nan­cial cri­sis. The CFPB in Novem­ber moved for a re­hear­ing of the case, lead­ing to Thurs­day’s de­ci­sion.

Any de­ci­sion in which the full ap­peals court re­in­states the Oc­to­ber rul­ing could open a le­gal av­enue for re­mov­ing CFPB Di­rec­tor Richard Cor­dray. Nonethe­less, the full court’s de­ci­sion the­o­ret­i­cally could be ap­pealed to the Supreme Court.

The reg­u­la­tor de­clined to

com­ment on the new de­ci­sion be­cause the case re­mains in lit­i­ga­tion. Helgi Walker, an at­tor­ney for PHH, said, “We are con­fi­dent that we will pre­vail.” She noted that the Oc­to­ber rul­ing ’s stay of the CFPB’s or­der re­gard­ing PHH “re­mains in place.”

From the day the reg­u­la­tor opened its doors in 2011, the CFPB and Cor­dray have been lauded by ad­vo­cates who wel­comed its fo­cus on con­sumer is­sues. For equally long, Capi­tol Hill Repub­li­cans have crit­i­cized the bureau for its ex­emp­tion from con­gres­sional bud­get over­sight. CFPB sup­port­ers cite en­force­ment ac­tions such as the Jan­uary law­suits the reg­u­la­tor and two states’ at­tor­neys gen­eral filed against Navient, the na­tion’s largest ser­vicer of stu­dent loans. The law­suits ac­cuse Navient of fail­ing bor­row­ers for years by pro­vid­ing in­ac­cu­rate pay­ment in­for­ma­tion and pro­cess­ing pay­ments in­cor­rectly. Navient has de­nied the al­le­ga­tions and is con­test­ing the law­suits.

Mike Lan­dis, lit­i­ga­tion di­rec­tor of the U.S. Pub­lic In­ter­est Re­search Group, a lib­eral con­sumer or­ga­ni­za­tion, said Thurs­day’s rul­ing gives Cor­dray “the chance to ... con­tinue be­ing a con­sumer cham­pion.”

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