Appeals Court Rules CFPB Structure Is Constitutional; Industry Win on RESPA

On Wednesday, January 31st, the U.S. Court of Appeals for the D.C. Circuit delivered a mixed ruling to the Consumer Financial Protection Bureau (CFPB) "by upholding its constitutional structure while also slapping down the agency's practice of making new interpretations of law through enforcement actions" as reported by American Banker.

In October of last year a D.C. Circuit panel held that the power and legal protections afforded to the director of the CFPB amounted to an unconstitutional concentration of executive power—the result being that the court struck provisions of enacting legislation that shielded the director from termination except "for cause." An en banc panel of the D.C. Circuit reversed that decision yesterday. Essentially, the en banc panel disagreed with the earlier panel's argument that the power vested in the CFPB director was without constitutional or administrative precedent. Pointing to a number of "for cause" protections in agencies such as the U.S. Securities and Exchange Commission, the en banc panel reasoned that such protections were constitutionally permitted under Article II.
This decision does not address the already-plentiful uncertainty surrounding the CFPB and its enforcement practices. This decision may affect the parallel legal dispute surrounding who the director of the CFPB actually is. Currently, Leandra English, the CFPB's deputy director, is challenging a ruling that permitted the executive appointment of Mick Mulvaney to the director role in November 2017. While the lawsuits are separate, the restoration of the "for cause" protection for the existing CFPB director could weaken the legal case in support of Mr. Mulvaney's appointment.

In the matter of the PHH case, the article explains that "the court said that Cordray erred in redefining the Real Estate Settlement Procedures Act to take action against PHH," and that "the CFPB had violated due process by not providing PHH with notice of its new interpretation of Respa." It also ruled that the CFPB is subject to the three-year statute of limitations in administrative cases.

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