Consumer watchdog gets a reprieve
Court to reconsider decision that CFPB is unconstitutional
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.”