Appeals Court Backs Key Part Of The Structure Of Consumer Watchdog Agency

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A federal appeals court in Washington, D.C., has ruled that the independent structure of the Consumer Financial Protection Bureau — which forbids the president to remove its director except for certain causes — is constitutional. That's a setback for the agency's critics in the financial industry and the Trump administration.

By a vote of 7-3, the U.S. Court of Appeals for the District of Columbia ruled that Congress acted appropriately when it set up the bureau with a single director who could only be removed by the president for inefficiency, malfeasance in office or neglect of duty, and not for political reasons.

The case involves the PHH Corp, a New Jersey mortgages services company that had been fined $109 million in 2015 for alleged mortgage kickbacks. The company responded by challenging the CFPB Director's protection from removal as unconstitutional.

As NPR's Chris Arnold reports:

"After the financial crisis a decade ago, Congress created the Consumer Financial Protection Bureau. It's run by a single director with broad powers to create and enforce regulations that protect Americans from predatory lending and other abuses. "Critics argue that gives the bureau too much power. They wanted President Trump to be able to fire the director for whatever reason he wanted. "Now the court has ruled even the president doesn't have that power."

In its 250-page ruling, the appeals court said:

"PHH challenges the removal protection of the Consumer Financial Protection Bureau's Director, arguing that it unconstitutionally upsets the separation of powers. But the CFPB's structure respects the powers and limits of each branch of government. Congress's decision to establish an agency led by a Director removable only for cause is a valid exercise of its 18 Article I legislative power."

But as NPR's Arnold added, in the short term, the ruling won't make much difference. The Obama-era director, Richard Cordray stepped down in November 2017. Trump replaced him with an interim chief, White House Budget Director Mick Mulvaney, a longtime agency critic who once dismissed the agency as a "sad, sick joke." There is an ongoing lawsuit related to Mulvaney's authority. Upon Cordray's resignation, he appointed his chief of staff, Leandra English, as acting director of the Bureau. That set up a power struggle over the CFPB's leadership and so far a federal court judge has sided with the Trump administration, allowing Mulvaney to take charge.

That ruling is under appeal. The decision by the D.C. appeals court does not impact that lawsuit.</s>WASHINGTON — An appeals court on Wednesday upheld the structure of the Consumer Financial Protection Bureau, determining it is constitutional to bar the president from firing its director at will, even as the Trump administration works to weaken the regulator.

Wednesday's ruling overturns a November 2016 decision that had given presidents the power of dismissal over a CFPB director and marks the latest development in a complicated fight over leadership of the agency, which was established to crack down on predatory financial practices after the 2007-2009 financial crisis.

The ruling from the Court of Appeals for the District of Columbia is part of a broader fight over the agency's structure, and comes amid a separate, more immediate controversy that emerged after President Donald Trump appointed Mick Mulvaney, an agency critic who also is director of the Office of Management and Budget, as its temporary head in November.

The CFPB had appealed the 2016 court decision that gave the president the power to fire the agency's director without proof of serious misconduct. The fight over the agency's structure is part of a continuing lawsuit between the agency and a mortgage servicer, PHH Corp.

Wednesday's ruling is separate from another legal fight over the leadership of the agency in which the CFPB's deputy director, Leandra English, is suing to bar Mulvaney from leading the agency in an acting capacity. That case is still pending before the same court.

"Congress’s decision to provide the CFPB director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will," the court wrote in its Wednesday opinion.

The original ruling by a three-judge panel on the D.C. Circuit Court threatened to upend the CFPB, which was created as part of the 2010 Dodd-Frank financial reform law. There, judges ruled that it was unconstitutional to grant a single director, serving a five-year term, protection from presidential removal.

Wednesday's decision could be appealed to the U.S. Supreme Court by PHH, which did not immediately respond to a request for comment.

The company did get a favorable portion of the ruling, as the court reinstated an earlier ruling throwing out the $109 million fine the CFPB levied against PHH that was the catalyst for the lawsuit. Judges previously determined the CFPB overstepped its bounds in assessing that fine.

Mulvaney's appointment to the job set off a controversy when English, chosen by outgoing CFPB director Richard Cordray as his replacement, filed suit to bar Mulvaney from taking the job. A federal judge ruled against English in November, leading to her appeal.</s>A federal appeals court has upheld the constitutionality of the Consumer Financial Protection Bureau's structure in the face of challenges from business interests and conservatives.

The D.C. Circuit Court of Appeals ruled 7-3 on Wednesday that a provision in the 2010 Dodd-Frank law that limits the president’s ability to remove the CFPB director during his or her five-year term does not violate the president’s authority to appoint and remove executive branch officers.

The ruling was largely along ideological lines, with one George W. Bush appointee joining all the Democratic-appointed judges in upholding the consumer bureau's structure. The three dissenting judges were all Republican appointees.

The CFPB, the brainchild of Elizabeth Warren (D-Mass.) before she entered the Senate and a product of the landmark Dodd-Frank law, has been a lightning rod for criticism by Republicans and industry, who view it as overly aggressive in its enforcement. They argue that its single-director structure and funding outside of the congressional appropriations process make it unaccountable, a core issue at the heart of the court case.

The case is separate from another fight over the leadership of the agency.

In November, Richard Cordray, who was appointed CFPB director by then-President Barack Obama, resigned and designated his deputy, Leandra English, as acting head of the agency. The same day, President Donald Trump named his budget chief, Mick Mulvaney, as the CFPB’s acting head. English and others have filed lawsuits challenging Mulvaney's appointment, but no court has stepped in to block Trump’s move.

The same court that ruled in Wednesday’s decision will hear English’s appeal to halt any further action by Mulvaney as acting director. Mulvaney has taken a number of steps to rein in the bureau since he took over, including requesting no additional funding from the Federal Reserve for the CFPB for the second quarter of fiscal year 2018.

Wednesday's decision involved a case brought by PHH Corp., a New Jersey mortgage service provider that the CFPB targeted for an enforcement action in 2015. PHH challenged the bureau’s leadership structure in court and initially won a ruling in its favor. But the bureau’s appeal preserved its single-director leadership before Cordray left to run for governor in Ohio.

Though the court ruled the CFPB structure is constitutional, it rejected the penalty that Cordray imposed on PHH, which could affect the company’s decision on whether to appeal to the Supreme Court. Cordray added more than $100 million to a fine recommended by an administrative law judge, and Wednesday’s ruling stayed his order for the company to pay a fine, pending review.

While decrying the court’s ruling, House Financial Services Chairman Jeb Hensarling (R-Texas), one of the CFPB's biggest critics, poked at progressives who hailed the preservation of the bureau’s single-director structure.

“I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling,” Hensarling said in a statement. “In the meantime, I take great solace in the fact that Mick Mulvaney can use his unchecked, unilateral powers to continue the agency’s transformation into one that will, as he said, 'exercise [its] statutory authority to enforce the laws of this nation.'"

The ruling means that Trump’s permanent successor to Mulvaney will also hold a five-year term, meaning that even if Trump does not win reelection, his pick will continue on into a new administration.

One of the lawyers who argued in favor of the CFPB’s structure, Deepak Gupta, praised the court’s decision.

“This is a resounding victory for the Consumer Financial Protection Bureau and for independent agencies generally,” Gupta said. “It would’ve been a devastating loss to the very concept of independent agencies that have existed since the New Deal” had the bureau lost the case.

Gupta, who also represents English in her challenge to Mulvaney, said the court’s decision to send PHH’s fine back to the CFPB for review casts doubt on whether the case would be appealed again to the Supreme Court.

“I could see an argument that they got what they asked for and so they don’t have the ability to take this to Supreme Court,” he said.

Ted Olson, the lead lawyer for PHH in the case, did not immediately respond to multiple requests for comment.

The Consumer Bankers Association, a banking trade group, applauded the court’s decision over the fine while expressing disappointment over the ruling in favor of the single-director structure’s constitutionality.

“While the Court ruled the CFPB’s governing structure was not unconstitutional, it does not mean the current structure is appropriate for the Bureau’s long-term credibility,” said Richard Hunt, president and CEO of the association, in a statement.

For now, the fight over who should act as CFPB director remains.

Gupta argued that Wednesday’s ruling could hold implications for English’s case.

“It does have implications for the case, no question, because this is a resounding affirmation of the independence that Congress wanted for this agency,” he said. “The White House [OMB] director is effectively running the agency."</s>The head of the Consumer Financial Protection Bureau can only be replaced for cause, a U.S. appeals court said Wednesday. An earlier ruling in a case brought by mortgage company PHH Inc. had called the agency’s structure unconstitutional, and found that the director had too much control. But the DC Circuit Court of Appeals found that Congress had created the agency and established the director position with such political considerations in mind. The CFPB became a political football late last year when then-head Richard Cordray resigned to run for governor of Ohio and the Trump administration installed White House budget director Mick Mulvaney as acting head.</s>The structure of the Consumer Financial Protection Bureau is constitutional, an appeals court ruled Wednesday in a blow to President Donald Trump's efforts to ease regulations on the financial system.

Court of Appeals for the District of Columbia Circuit made the ruling in a battle over whether the president could remove the director at will. The court in October had upheld a challenge to the structure but agreed to rehear the case.

Republicans had challenged the CFPB structure on grounds that the director's position was unaccountable to the executive branch.

PHH Corp. had issued the initial suit in a fight over a $109 million fine the bureau leveled against the company for allegedly taking kickbacks for sending customers to mortgage insurers. The CFPB added a $103 million onto an initial $6 million fine, something it lacked authority to do, PFF charged.

The court did say the CFPB made errors in assessing the added penalty. The case could now be headed to the Supreme Court.

Trump has been a critic of the bureau, whose initial director, Richard Cordray, stepped down in late 2017. Office of Management and Budget Director Mick Mulvaney has led the bureau since, though there even had been dispute over he or Leandra English, Cordray's chief of staff, is the rightful leader. Wednesday's decision does not address that issue.

The appeals court's ruling likely doesn't end the long-running dispute over the bureau.

Richard Hunt, the CEO of the Consumer Bankers Association, said "we applaud" the decision but the group sees further adjustments warranted.

"Congress should create a bipartisan commission at the CFPB, in place of a sole director, to uphold the Bureau's mission of consumer protection and would establish transparency, diversity of thought, additional industry insight and rule makings beneficial to consumers, the industry and the economy," Hunt said in a statement.

The president has said the bureau has overreached in its enforcement of financial system regulations. Trump has sought a less restrictive environment on a number of fronts but particularly banking, which he sees as key to generating more economic development.

In making its ruling, the court rejected the argument that the president could remove the CFPB director without cause. The ruling stated that a provision of the Dodd-Frank reforms, passed after the financial crisis of 2008, "shielding the Director of the CFPB from removal without cause is consistent" with Article II of the Constitution.

Dodd-Frank states that the director can be removed only for "inefficiency, neglect of duty, or malfeasance in office."

CNBC has reached out to the White House for comment.</s>CFPB Structure Is Constitutional, DC Circ. Says In Reversal

Law360, New York (January 31, 2018, 10:45 AM EST) -- An en banc panel of D.C. Circuit judges on Wednesday overturned a ruling that would have allowed President Donald Trump to fire the Consumer Financial Protection Bureau’s director at will, preserving the agency's current structure and setting up a potentially messy process before the U.S. Supreme Court.



The D.C. Circuit voted Wednesday to reverse a decision that found the Consumer Financial Protection Bureau's single-director structure was unconstitutional. The agency is currently led by acting director Mick Mulvaney, seen here Nov. 27. (AP) The full panel of D.C....

To view the full article, register now.</s>WASHINGTON, Jan 31 (Reuters) - A U.S. appeals court upheld the structure of the U.S. Consumer Financial Protection Bureau Wednesday, determining it is not unconstitutional to bar the president from firing its director at will.

The CFPB had appealed a November 2016 court decision that gave the president the power to fire the agency’s director without proof of serious misconduct. The fight over the agency’s structure is part of an ongoing lawsuit between the agency and a mortgage servicer, PHH Corp. (Reporting by Pete Schroeder Editing by Chizu Nomiyama)</s>In a stunning reversal of its previous decision, the full Court of Appeals for the District of Columbia Circuit ruled Wednesday that the Consumer Financial Protection Bureau is constitutionally structured.

The decision reverses the court’s October 2016 decision that declared the CFPB’s leadership structure unconstitutional by a 2-1 vote and vacated a $100 million fine levied by the CFPB against PHH Corp.

“None of the theories advanced by PHH supports its claim that the CFPB is different in kind from the other independent agencies and, in particular, traditional independent financial regulators,” the court’s ruling states.

“The CFPB’s authority is not of such character that removal protection of its Director necessarily interferes with the President’s Article II duty or prerogative,” the ruling continued. “The CFPB is neither distinctive nor novel in any respect that calls its constitutionality into question. Because none of PHH’s challenges is grounded in constitutional precedent or principle, we uphold the agency’s structure.”

The court also ruled that PHH’s challenge, if successful, would have changed the face of government as we know it.

From the court’s ruling (emphasis added by HousingWire):

Wide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions. The threat PHH’s challenge poses to the established validity of other independent agencies, meanwhile, is very real. PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies—whether collectively or individually led—that, if accepted, would broadly transform modern government. Because we see no constitutional defect in Congress’s choice to bestow on the CFPB Director protection against removal except for “inefficiency, neglect of duty, or malfeasance in office,” we sustain it.

The court’s earlier decision declared the leadership structure of the CFPB to be unconstitutional, ruling that CFPB’s current structure allows the director to wield far too much power, more than any other agency in the government.

“Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency,” the court wrote in its October 2016 decision.

The case began with former CFPB Director Richard Cordray adding a $103 million increase onto a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.

PHH fought the fine, arguing that Cordray did not have the authority to increase the fine. The case eventually made its way to the Court of Appeals, which ruled in 2016 that the CFPB’s leadership structure was unconstitutional and vacated the additional $103 million fine.

The CFPB fought the ruling, asking the court to rehear the case en banc, meaning that it wanted the entire court to hear the case, which the court agreed to do back in February 2017.

The court’s previous ruling in the CFPB-PHH case also made the director of the agency removable at will. Under the CFPB’s current structure, the director serves a five-year term and may only be terminated by the president for “inefficiency, neglect of duty, or malfeasance in office.”

Last year, the government began to indicate that it might be switching sides in the battle between the CFPB and PHH, signaling that the Trump administration would not be as supportive of the CFPB as the Obama administration had been.

And indeed that’s what happened, as the Department of Justice filed an amicus brief in March 2017, asking the court to rule the CFPB’s leadership structure unconstitutional and grant President Donald Trump the authority to fire the CFPB director at will.

But the full Court of Appeals ruled that the CFPB is constitutionally structured and that the director is removable only for cause.

We find no reason in constitutional precedent, history, or principle to invalidate the CFPB’s independence. The Supreme Court has sustained for-cause protection for the heads of certain administrative agencies—even if they perform a mix of regulatory, investigative, prosecutorial, and adjudicatory functions—as compatible with the President’s essential duty to assure faithful execution of the law. The CFPB led by a single Director is as consistent with the President’s constitutional authority as it would be if it were led by a group. Like other independent federal financial regulators designed to protect the public interest in the integrity and stability of markets from short-term political or special interests, the CFPB is without constitutional defect. Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will. We have no warrant here to invalidate such a time-tested course. No relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure. Congress made constitutionally permissible institutional design choices for the CFPB with which courts should hesitate to interfere.

But the court’s decision was not unanimous. Several judges, including Judge Brett Kavanaugh, who authored the court’s original opinion, dissented in this ruling.

In his dissenting opinion, Kavanaugh argues that the CFPB should be led by a committee, rather than a single director.

“The CFPB violates Article II of the Constitution because the CFPB is an independent agency that exercises substantial executive power and is headed by a single Director,” Kavanaugh writes in his dissention. “We should invalidate and sever the for-cause removal provision and hold that the Director of the CFPB may be supervised, directed, and removed at will by the President.”

Coincidentally, there’s also another CFPB-related legal battle that the D.C. Court of Appeals is set to hear soon.

This one involves the leadership of the bureau itself.

Leandra English, who was Cordray’s choice to lead the bureau after he stepped down, has been fighting in the courts after Mick Mulvaney was installed as CFPB acting director.

Just before Cordray stepped down in November, he promoted English from chief of staff to deputy director, positioning her to take over as acting director upon Cordray’s departure.

But the Trump administration fought Cordray’s line of succession and installed Mulvaney, who frequently criticized the agency while serving in Congress, as acting director.

That set off a legal battle over who was really in charge of the CFPB, but U.S. District Judge Timothy Kelly sided with Trump, handing control of the bureau to Mulvaney.

But English didn’t give up, asking Kelly for a preliminary injunction that would have replaced Mulvaney with English at the CFPB. That request proved unsuccessful, as Kelly denied English’s request for a preliminary injunction, which enabled Mulvaney to maintain control of the CFPB.

English took her case to the D.C. Court of Appeals, which said earlier this month that it will hear English’s case on an expedited basis.

To read the Court of Appeals full decision on the CFPB-PHH case, click here.</s>Congress acted appropriately in mandating that the bureau's single director, who serves a five-year term after being nominated by the president and confirmed by the Senate, can only be removed by the president for inefficiency, neglect of duty or malfeasance in office, according to the 7-3 ruling by the U.S. Court of Appeals for the District of Columbia.</s>The Consumer Financial Protection Bureau’s director can only be fired by the president for cause, a federal appeals court ruled on Wednesday, restoring security to a job that has become a political lightning rod.

When Congress created the bureau seven years ago, it specified that the director — after being nominated to a five-year term by the president and confirmed by the Senate — could only be removed for “inefficiency, neglect of duty or malfeasance.” That standard differs from those in effect at most other federal agencies, whose leaders can typically be removed at will by a president.

Last year, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit found the bureau’s setup to be unconstitutional. On Wednesday, the full circuit court issued a ruling that vacated the earlier decision and upheld the constitutionality of the consumer bureau’s structure.

There is “no constitutional defect” in the unusual independence that lawmakers granted to the bureau’s director, the ruling issued on Wednesday said. The court added: “Congress’s decision to provide the C.F.P.B. director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will.”

The Trump administration had argued in a court brief that the president should have the power to remove the agency’s leader at will. A Justice Department official said, “We are disappointed in the decision and reviewing our options.”
The U.S. Court of Appeals for the District of Columbia rules, by a 7–3 vote, that the independent structure of the Consumer Financial Protection Bureau is constitutional. A separate case involving directorial succession is under appeal; lower courts have approved the president's selection of Mick Mulvaney as head of CFPB.