WASHINGTON (Oct. 13, 2016) — The Consumer Financial Protection Bureau (CFPB) survived a constitutional challenge and will remain in business, though a federal appeals court took away power from its director and tossed out a $109 million penalty against a mortgage company.
The long-awaited decision was a blow to the agency, which was created in the wake of the financial crisis to regulate auto lending, mortgages, credit cards and other products directed at consumers. Ever since, it's been the subject of almost constant criticism from Republicans and the industry, even as it scored its highest-profile victory to date, penalizing Wells Fargo & Co. for opening accounts without clients' knowledge.
The appellate court found the CFPB to be “unconstitutionally structured” because the autonomy vested in Director Richard Cordray — who could only be fired by the president and for cause — was a “gross departure from settled historical practice.”
But the three-judge panel rejected calls to dismantle the agency, instead voiding the for-cause provision and making the director removable by the president at any time and for any reason. “The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice or the Department of the Treasury,” the court ruled.
The court's decision allows the CFPB to continue operating as an agency, but orders it to operate as an executive agency like the other executive agencies that are headed by a single individual.
Since it was created, the agency has battled with new-vehicle dealers over interest rates charged buyers and with auto lenders over discrimination.
“We applaud the court for recognizing the overreach created when too much power is vested in an agency virtually unaccountable to anyone,” said Steve Jordan, CEO of the National Independent Automobile Dealers Association. “NIADA supports a common sense approach to consumer protection and fair dealing in the financial marketplace, but the current structure of the CFPB accomplishes neither.”
NIADA hopes to win support for the Financial CHOICE Act, which would restructure the CFPB to be led by a bipartisan, five-member commission like most independent federal agencies. The bill also would subject the CFPB's budget to Congressional oversight through the appropriations process.
Moira Vahey, a CFPB spokeswoman, said the agency was considering its options for further review of the ruling, while remaining focused on its mission.
“The Bureau respectfully disagrees with the Court's decision,” Ms. Vahey said in an emailed statement. “The Bureau believes that Congress's decision to make the director removable only for cause is consistent with Supreme Court precedent.”
The bureau's options include seeking reconsideration by the full complement of judges on the Washington-based court and petitioning for U.S. Supreme Court review.
Other business and trade groups also welcomed the ruling, while consumer advocacy groups condemned it.
“The D.C. Circuit's decision eliminating the CFPB director's independence threatens the ability of the agency to be a tough protector of consumer interests,” said Public Citizen President Robert Weissman.
Sam Kazman, general counsel of the Competitive Enterprise institute, called the ruling “a great day for limited government and the constitutional separation of powers.” The ruling, he added, would “play a major role in providing proper accountability for this rogue agency.”
The court action comes only a month after the CFPB drew praise from Democrats, including presidential candidate Hillary Clinton, for its role in fining Well Fargo $185 million to resolve allegations that bank employees opened deposit and credit-card accounts without customer approval to satisfy sales goals and earn financial rewards. The bank agreed to pay $100 million of that to the CFPB.
Democrats had hailed the enforcement action as a victory for the CFPB and used it to emphasize the need for the agency. They attacked Republican lawmakers who support legislation that would undo the 2010 Dodd-Frank Act and with it, the bureau.