On appeal, court upholds constitutionality of CFPB’s structure

A three-judge panel had previously sided with PHH Mortgage in its suit against the Consumer Financial Protection Bureau, declaring its structure unconstitutional and vacating its $103 million fine.

The U.S. Court of Appeals for the District of Columbia Circuit this week overturned a lower court by holding that the current structure of the Consumer Financial Protection Bureau is constitutional.

The ruling is a blow to many critics of the bureau who criticized its single-director structure and that the director may only be removed for cause. But it is unclear what will result from the ruling in the Trump era.

The Dodd-Frank Act set up the CFPB with a single director, unlike other federal agencies that have a panel or committee. Like other executive officers, the director of the CFPB is appointed by the President and confirmed by the Senate. However, the President is not free to remove the CFPB director at will. Instead, the removal can only be “for cause,” which Dodd-Frank defines as “inefficiency, neglect of duty, or malfeasance in office.” With such a high bar to meet for removal, the CFPB director is unusually secure.

PHH Mortgage had originally sued in federal court, claiming that the CFPB’s structure rendered it unconstitutionally unaccountable to the President. A three-judge panel initially sided with PHH last fall, declaring the bureau’s structure unconstitutional and vacating the CFPB’s proposed $103 million fine against the company.

The D.C. Court last week overturned that declaration of unconstitutionality (it did not rule on the validity of the fine, leaving it vacated). In making its ruling, the court rejected PHH’s argument that the president should be able to remove the CFPB director without cause. The ruling stated that the structure chosen by Congress ”shielding the director of the CFPB from removal without cause is consistent” with Article II of the Constitution.

“None of the theories advanced by PHH supports its claim that the CFPB is different in kind from the other independent agencies and, in particular, traditional independent financial regulators,” the court’s ruling states. “The CFPB’s authority is not of such character that removal protection of its director necessarily interferes with the President’s Article II duty or prerogative.” The ruling continued, “The CFPB is neither distinctive nor novel in any respect that calls its constitutionality into question. Because none of PHH’s challenges is grounded in constitutional precedent or principle, we uphold the agency’s structure.”

The court’s decision was not unanimous. The dissenting opinion argued that the CFPB should be led by a committee, rather than a single director. “The CFPB violates Article II of the Constitution because the CFPB is an independent agency that exercises substantial executive power and is headed by a single Director.”

Given the strong dissent, PHH may appeal the decision to the Supreme Court. However, the debate may be rendered moot if Congress revisits the bureau’s structure soon.