Federal Appeals Court Panel Strikes Blow to CFPB

On Tuesday, October 11th, a three-judge federal appeals court panel ruled that the CFPB is “unconstitutionally structured” and simultaneously threw out a $109 million enforcement action against mortgage lender PHH Corp. The court took issue with the agency’s structure because of its unique leadership arrangement. Unlike other independent agencies the CFPB is headed by a single director who, prior to this ruling, could only be removed by the President for a specific cause. The panel’s decision concluded that this framework was a “gross departure from settled historical practice” and a violation of the Constitution’s separation of powers. But rather than shut the CFPB down, the ruling gave the President “the power to supervise and direct the Director of the CFPB, and … remove the Director at will at any time.” Given this change, the outcome of the Presidential election will play a large role in determining whether Director Richard Cordray completes his term, which is set to expire in 2018.

According to an article in the Wall Street Journal, CFPB spokeswoman Moira Vahey has said that the CFPB is reviewing the ruling and doesn’t yet have a comment.

Initially, this question came before federal judges because of a challenge made by PHH Corp. to an enforcement action the CFPB had taken against it. As reported by the Wall Street Journal, PHH Corp., argued that Dir. Cordray “overstepped his authority by overturning a $6.5 million fine imposed by an internal judge at his agency … deciding instead to impose a $109 million fine.” The panel of judges ruled unanimously that the agency had overstepped its authority.

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