The Consumer Financial Protection Bureau is “unconstitutionally structured” and must be reorganized, a federal appeals court ruled Tuesday.
The D.C. Circuit Court of Appeals decided that the new consumer agency, created by Congress in 2010, cannot be headed by a single director who can be removed only for cause by the president.
Instead, the court said, the president should be able to remove the bureau’s director for any reason and to give him or her orders.
Judge Brett Kavanaugh, a George W. Bush appointee, wrote for the three-judge panel that the the bureau “will continue to operate and perform its many critical responsibilities, albeit under the ultimate supervision and direction of the president.”
Kavanaugh wrote that the bureau’s structure, an independent agency with a single director rather than a multi-member commission, is a “gross departure from settled historical practice.”
The director, he wrote, has “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.”
The case was brought by a mortgage lender that had been fined by the bureau. The lender, PHH Mortgage Corp., had sought to have the entire agency shut down as unconstitutional. Instead, it will continue to run but with greater accountability to the president, pending further appeals. Tuesday’s decision was written by Kavanaugh and joined in all or in part by two other judges, both appointed by George H.W. Bush.
The decision was immediately welcomed by the financial services industry and congressional Republicans, who have objected to the bureau’s set-up and opposed many of its actions.
“This is a good day for democracy, economic freedom, due process and the Constitution,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee. Hensarling has advanced legislation that would turn the bureau’s leadership into a five-member commission, with some commissioners chosen by each party.
Rather than institute a commission, Tuesday’s order would make the director more accountable to the president. Other independent agencies with commissions, such as the Securities and Exchange Commission, do not similarly answer to the president.
Whether that order remains in place depends on the administration’s next steps. The Obama administration could ask for the case to be reviewed by all judges of the court, rather than just the three Republican-appointed judges, which could produce a more bureau-friendly decision. If the case were to be reviewed by the understaffed Supreme Court, the bureau would be at a disadvantage in that a 4-4 split would leave the appeals court decision in place.
Nevertheless, the bureau’s supporters will be hoping that the decision is overruled one way or another.
“Compromising the CFPB’s independence would be a huge gift to Wall Street greed and a loss for consumers. We are hopeful that this erroneous decision will be overturned,” said Lisa Donner, the executive director of Americans for Financial Reform, a group that advocates for tighter regulations on the financial industry.
