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DC Circuit Rules CFPB Structure Unconstitutional

On Behalf of | Oct 11, 2016 | News |

If you do nothing else today, read this post!

The United States District Court for the DC Circuit issued today what is probably the most significant opinion in the last 50 years. The Consumer Finance Protection Bureau (“CFPB”) has been handed what could be a fatal blow to its heretofore unchallenged, and some might say abusive, regulatory pronouncement and enforcement efforts.

The first line of the opinion really says it all: “This is a case about executive power and individual liberty.” Richard Cordray, the CFPB Director, imposed a $109,000,000 fine on PHH Mortgage for using “so-called captive reinsurance arrangements” with reinsurers affiliated with PHH. The Director imposed this penalty even though the administrative judge that initially heard the matter recommended a penalty of only $6,000,000. The Court ultimately agreed with PHH in its assertion that “the CFPB’s status as an independent agency headed by a single Director violates Article II of the Constitution.”  In reaching this conclusion, the Court observed that “[n]o head of either an executive agency or an independent agency operates unilaterally without any check on his or her authority.  Therefore, no independent agency exercising substantial executive authority has ever been headed by a single person.  Until now.”

The Court went on to note that “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.”  No more.

The Court held that the previously unfettered power of Richard Cordray to exercise control over the financial services industry and to impose the type of fine levied on PHH was unconstitutional.

While the ultimate impact of this decision will not be known for a few weeks or even months, this decision by the DC Circuit is a must-read for anybody interested in constitutional law and the limits on governmental authority.

Here is a link to the opinion: https://www.cadc.uscourts.gov/internet/opinions.nsf/AAC6BFFC4C42614C852580490053C38B/$file/15-1177-1640101.pdf/