CFPB Regains Measure of Independence on Appeals Court Ruling
CFPB Head Protected From Politics, Court Says in Blow to Trump
(Bloomberg) -- The Consumer Financial Protection Bureau has regained a measure of independence. A U.S. appeals court ruled Wednesday the president can only fire the agency’s head for neglect or wrongdoing and not just any reason, as the Trump administration sought.
Congress meant to protect the bureau from the ebb and flow of politics, according to the Washington-based court’s majority opinion. Giving the president more latitude to fire the director “would put the historically established independence of financial regulators and numerous other independent agencies at risk,” U.S. Circuit Judge Nina Pillard wrote.
The 7-3 ruling comes too late for the intended target of the legal challenge, Democrat Richard Cordray. He resigned from the CFPB in November to run for governor of Ohio.
The decision is likely be appealed to the U.S. Supreme Court by the administration and by PHH Corp., the New Jersey mortgage company that sued to dismantle the CFPB in 2015 after being hit with $109 million in fines for violating federal real estate transaction rules.
While a three-judge panel threw out those penalties in October 2016, it stopped short of ordering the agency’s dissolution. Still, it empowered the president to fire the director for any reason, prompting the CFPB to seek a rehearing before the full court.
In a statement after the ruling, PHH said it was "important and gratifying" that the court upheld the dismissal of the fines. The company was silent on the other issues.
The bureau was created under the 2010 Dodd-Frank Wall Street reform legislation to protect ordinary consumers from predatory practices of banks, mortgage and credit card companies.
Such regulators are models of appropriate and necessary independence, the court said Wednesday.
"Congress’s decision to provide the CFPB director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will," Pillard wrote. "We have no warrant here to invalidate such a time-tested course."
The CFPB said it’s analyzing the ruling. The Justice Department said it was reviewing its options.
Dennis Kelleher, president of the watchdog group Better Markets, called the decision "an important victory for every American who uses a financial product, be it a checking or savings account, payday or mortgage loan or credit cards."
The bureau’s independence made it effective, Kelleher said, "which is why the financial industry has been trying to kill it from the start."
The Consumer Bankers Association said the outcome doesn’t mean the CFPB’s structure is "appropriate" for its long-term credibility. The association urged Congress to convert the bureau into a bipartisan commission, to "establish transparency, diversity of thought, additional industry insight and rule makings beneficial to consumers, the industry and the economy.”
The bureau’s creation was championed by Democratic U.S. Senator Elizabeth Warren of Massachusetts. Cordray, a fellow Democrat and former Ohio Attorney General, was later appointed to lead it for a five-year term that would have expired in July.
“The court decision affirming the constitutionality of the CFPB demonstrates once again that the right wing’s hysteria over the consumer bureau is baseless," Warren said.
Cordray’s resignation sparked a fight over who would be acting director until a permanent replacement is nominated by President Donald Trump and confirmed by the Senate. Cordray tried to hand off his duties to Deputy Director Leandra English, but that plan was thwarted when Trump designated White House budget director Mick Mulvaney for the post, then fended off legal challenges to that move. That case too is now before the appeals court.
Warren said she expects English’s appointment to be ratified on appeal. "The president should follow the law and nominate a permanent director who has a track record of standing up for consumers and can garner bipartisan support in the Senate," Warren said.
PHH’s lawyer Theodore Olson told the appeals panel in May that the bureau’s structure was unconstitutional, citing the barrier to removal of its director and noting it receives funding from the unelected Federal Reserve, not Congress, factors he said insulated it from accountability.
That tribunal consisted of six judges who were Democratic appointees, and five picked by Republicans, one of whom has since retired. They questioned whether the Cordray-led CFPB actually took oversight powers away from a president.
Three of the judges dissented from the majority including U.S. Circuit Judge Brett Kavanaugh, who said "a president may be stuck for years with a CFPB director who was appointed by the prior president and who vehemently opposes the current president’s agenda."
Kavanaugh said the appropriate remedy was to leave the bureau intact, but endow the president with the power to dismiss its director at any time, echoing comments made in court by Justice Department lawyer Hashim Mooppan, who represented the administration.
“The quintessential hallmark of executive power is the ability to act with vigor and dispatch,” Mooppan said. The CFPB director’s unaccountability amounted to an intrusion to that authority.
The case is PHH Corp. v. Consumer Financial Protection Bureau, 15-1177, U.S. Court of Appeals, District of Columbia Circuit (Washington).
To contact the reporter on this story: Andrew Harris in Washington at aharris16@bloomberg.net.
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider
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