The federal appellate court for the District of Columbia delivered a major victory to consumers across the country on Wednesday: Sitting en banc, or as a full court, the judges upheld the Consumer Finance Protection Bureau’s independence.
Republicans and private sector actors have been on the lookout for ways to weaken the Consumer Finance Protection Bureau (CFPB) since its inception. Created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act, CFPB is an independent agency, meaning it is part of the executive branch but not under the president’s (or any cabinet secretary’s) control. Its specific mission is to protect consumers from being exploited by the financial services industry.
Several legal challenges have been brewing. This was the most serious: Following an enforcement order, a corporation challenged CFPB’s legitimacy in federal court, arguing that limiting the president’s power to remove the CFPB director was unconstitutional because it’s up to the president to “take Care that the Laws be faithfully executed.”
On the initial appellate hearing, a panel of the Court of Appeals for the District of Columbia concluded the president should have the power to remove the CFPB director.
The case, PHH Corporation v. Consumer Financial Protection Bureau, arises from a CFPB enforcement order against mortgage lender PHH for kickback violations under Section 8 of the Real Estate Settlement Procedures Act (RESPA). A divided panel of the D.C. Circuit Court of Appeals vacated the enforcement order on October 11, 2016, holding that the CFPB leadership structure is unconstitutional.
The panel, however, declined to disband the agency. Rather, the panel served up a limited remedy by severing the act’s “terminate for cause only” provision. If that remedy is upheld it would unofficially turn the CFPB into an executive agency. The remedy would allow the CFPB to remain in operation without new legislation, subject to the president’s power to terminate the director at will.
Then the D.C. Circuit granted rehearing en banc, a second hearing before the entire court—all 10 judges—to review the case. This time, the court ruled for the CFPB.
The D.C. Circuit Court of Appeals ruled, 7-3, that a provision in the 2010 Dodd-Frank law that limits the president’s ability to remove the CFPB director during his or her 5-year term does not violate the president’s authority to appoint and remove executive branch officers.
The recent struggle over who has the authority to appoint a new CFPB head was only the latest in a string of conflicts over the independent agency.
A second high-profile legal battle will soon land before the D.C. Circuit following a clash between outgoing CFPB director Richard Cordray and President Trump over who gets to appoint the agency’s acting head following a director’s resignation.
In November, Richard Cordray, who was appointed CFPB director by then-President Barack Obama, resigned and designated his deputy, Leandra English, as acting head of the agency. The same day, President Donald Trump named his budget chief, Mick Mulvaney, as the CFPB’s acting head. English and others have filed lawsuits challenging Mulvaney's appointment, but no court has stepped in to block Trump’s move.
The same court that ruled in today’s decision will hear English’s appeal to halt any further action by Mulvaney as acting director of the bureau. Mulvaney has taken a number of steps to rein in the bureau since he took over, including requesting no additional funding from the Federal Reserve for the CFPB for the second quarter of fiscal year 2018.
Both cases can (and likely will) be appealed to the Supreme Court via a petition for certiorari, or cert petition.
If the court declines to hear an appeal in Wednesday’s case, the D.C. Circuit’s ruling will stand, protecting not just CFPB but other independent agencies like the Equal Employment Opportunity Commission and Federal Election Commission from similar attempts to erode their independence.