Appeals court grants rehearing, vacates decision that questioned CFPB’s constitutionality


As reported by other media outlets as well as the American Financial Services Association and Hudson Cook, the U.S. Court of Appeals for the District of Columbia Circuit on Thursday granted the rehearing petition involving the case in which the initial decision reached last October called the Consumer Financial Protection Bureau “unconstitutionally structured.”

Along with that declaration, AFSA recapped that the case pitting the regulator against PHH Corp., a Mount Laurel, N.J.-based finance company that operates in the mortgage space, involved a three-judge panel of the court, which ruled the CFPB’s structure was constitutionally flawed and that its director, who currently is Richard Cordray, should be removable at the will of the president.

AFSA pointed out that the Dodd-Frank Act currently stipulates that the director may only be removed “for cause.”

In granting the petition asked for by the CFPB, AFSA and Hudson Cook both noted the court ordered that the three-judge panel’s ruling last October be vacated.

The appeals court also said it is asking case participants to answer these questions when an oral argument before the en banc court will be heard on May 24.

—Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

—May the court appropriately avoid deciding that constitutional question given the panel's ruling on the statutory issues in this case?

—If the en banc court, concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

“A decision is not expected until late summer at the earliest; a decision in the fourth quarter of this year is more likely,” AFSA said through its weekly Newsbriefs posting.

When Hudson Cook learned of the development, the firm said on its website, “In its October 2016 decision, the appellate court found that the director of the CFPB ‘enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the president.’ The appellate court ruled that the CFPB can continue to operate, but ‘will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury’ and will be removable by the president.”

Upon learning the development, Richard Hunt was another of the industry advocates to react. Hunt is president and chief executive officer of the Consumer Bankers Association (CBA).

“The court’s decision only creates further uncertainty regarding the constitutionality of the CFPB,” Hunt said. “As the CFPB is tasked with the important duty of consumer protection, Congress and the administration must move immediately to address this concern on behalf of consumers and create a five-person bipartisan commission.

“The vast majority of other federal agencies with immense power employ a bipartisan commission structure as it brings multiple viewpoints and balance to the table,” he continued.

Proposal to abolish the CFPB

The announcement by the U.S. Court of Appeals for the District of Columbia Circuit is the second major development associated with the CFPB this week as Sen. Ted Cruz and Rep. John Ratcliffe — both from Texas — introduced measures that would eliminate the CFPB altogether.

Cruz and Ratcliffe said the pair of bills (S. 370 and H.R. 1031) would help advance Republicans’ broader Dodd-Frank reform efforts by tackling Title X of the law.

“Don’t let the name fool you, the Consumer Financial Protection Bureau does little to protect consumers. During the Obama administration, the CFPB grew in power and magnitude without any accountability to Congress and the people, and I am encouraged by the actions President Trump has begun to take to roll back the harmful impacts of an out-of-control bureaucracy,” Cruz said.

“The legislation that Rep. Ratcliffe and I are introducing today gives Congress the opportunity to free consumers and small businesses from the CFPB’s regulatory blockades and financial activism, which stunt economic growth,” Cruz continued. “While there’s much more to do to scale back the harmful regulatory impositions of Dodd-Frank, this legislation takes a critical step in the right direction.”

Ratcliffe added, “The past several years showed us precisely why massive swaths of federal regulations are never the right solution to help hard-working Americans. President Trump has made it clear he’ll join us in our fight to dismantle Dodd-Frank and finally offer some relief to the small business owners throughout Texas and across the country who’ve been hit hardest by its devastating impact.

“The CFPB’s lack of accountability to the American people was quickly evidenced when — contrary to its name — it ended up hurting many of the very folks it was intended to help,” Ratcliffe went on to say. “While Sen. Cruz and I have been sounding the alarm on the CFPB’s federal overreach for some time now, I’m optimistic at our renewed chances of advancing this effort with a willing partner in the White House.”

Full text of the proposals can be viewed here.