In Long Awaited Decision, DC Court of Appeals Rules CFPB Structure is Unconstitutional

In an opinion filed today a federal appeals court ruled the structure of the Consumer Financial Protection Bureau is unconstitutional.  The case is PHH Corp. v. Consumer Financial Protection Bureau, United States Court of Appeals, D.C. Cir., Case No. 15-cv-01177. 

PHH, a mortgage company in Mount Laurel, N.J., wanted the U.S. Court of Appeals for the District of Columbia Circuit to vacate a June 2015 enforcement ruling by the Consumer Financial Protection Bureau (CFPB) that said PHH violated anti-kickback provisions in Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) and had to give up $109 million in what CFPB Director Cordray had said were ill-gotten mortgage reinsurance premiums. 

Among other issues, the case called into question the CFPB’s structure and authority.

On April 19, 2016 insideARM published an article that described the case and the arguments presented.

A copy of the Court of Appeals decision can be found here. The document is 110 pages long.

There are several key elements of the court’s opinion that can be found after just a cursory review of the Opinion. A few samples are below:

“Because the CFPB is an independent agency headed by a single Director and not by a multi-member commission, the Director of the CFPB possesses more unilateral authority – that is, authority to take action on one’s own, subject to no check – than any single commissioner or board member in any other independent agency in the U.S. Government. Indeed, as we will explain, the Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.

At the same time, the Director of the CFPB possesses enormous power over American business, American consumers, and the overall U.S. economy. The Director unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices.

The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law. (To be sure, judicial review serves as a constraint on illegal actions, but not on discretionary decisions within legal boundaries; therefore, subsequent judicial review of individual agency decisions has never been regarded as sufficient to excuse a structural separation of powers violation.) 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.

This new agency, the CFPB, lacks that critical check and structural constitutional protection, yet wields vast power over the U.S. economy.

In light of the consistent historical practice under which independent agencies have been headed by multiple commissioners or board members, and in light of the threat to individual liberty posed by a single-Director independent agency, ………………we hold that the CFPB is unconstitutionally structured. (Emphasis added.)

insideARM will provide more detailed analysis and perspective in the coming days.