Consumer Watchdog’s Structure Ruled Unconstitutional

In a 2-1 decision Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional, but added that the agency can continue to operate under the president’s supervision.

The court’s ruling also sent back for review the CFPB’s enforcement action against mortgage lender PHH Corp. The CFPB had fined PHH for allegedly accepting kickbacks from mortgage insurers. The lender appealed the CFPB’s fine, which is what triggered the court’s review and ruling against the agency.

According to the federal appeals court, the consumer watchdog agency— which was created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act — is in violation of the Constitution in that its sole director, Richard Cordray, has too much power because he can only be terminated by the president for cause instead of at will.

Writing in the court’s 110-page opinion, Judge Brett Kavanaugh says:

“That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.”

The court says giving the president the power to get rid of the agency’s director at will and oversee and direct the head of the CFPB would remedy the situation.

CFPB spokesperson Moira Vahey says the agency “respectfully disagrees” with the court’s ruling. She continues in an email:

“Congress has charged the bureau with ensuring that the markets for consumer financial products and services are fair, transparent, and competitive and with protecting consumers in these markets from unlawful practices. Today’s decision will not dampen our efforts or affect our focus on the mission of the agency.”

According to The Wall Street Journal, allowing the president to remove the head of the CFPB at will “could make the CFPB a more political agency than it is now, because the White House would be able to exert more control over its direction.”

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