Judges Mull Future of Consumer Financial Protection Bureau
Consumer Reports has no relationship with any advertisers on this website.
A federal appeals court heard arguments Wednesday that could help determine the fate of the embattled Consumer Financial Protection Bureau and its director, Richard Cordray.
At stake is how the CFPB is structured and its ability to continue its mandate to safeguard the interests of ordinary consumers in their dealings with banks and other financial institutions.
The arguments before the 11 judges of the U.S. Court of Appeals in Washington, D.C., focused largely on the CFPB's constitutionality—in particular whether the bureau's structure limits presidential power.
The CFPB, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is run by one director, who has a five-year term and can only be removed by the president for cause—that is, incompetence or malfeasance.
Theodore Olson, an attorney for financial services company PHH Corp., the plaintiff in the case, sued the CFPB in 2014. He argued Wednesday before six Democratic-appointed judges and five Republican-appointed judges that such a structure gives the CFPB director more power than was intended by framers of the Constitution.
"You have a concentration of power," Olsen told the judges. In creating the CFPB, he noted, "Congress itself understood and recognized that it was going further than it ever did before in limiting the President's power." A single director who cannot be dismissed without cause, and with a term that potentially outstrips that of the president, limits the chief executive’s authority, he maintained.
Supporters of the current CFPB structure say it does not limit presidential power, and further allows for the CFPB to protect consumers without politics getting in the way.
"If the president can remove an official at least for cause, the president has sufficient authority," argued Lawrence DeMille-Wagman, senior CFPB litigation counsel.
Many consumer groups agree. “The CFPB director needs to be independent from potential political pressure in order to be able to stand up for protecting the interests of consumers against the immense power of the financial industry,” said Pamela Banks, senior policy counsel for Consumers Union, the policy and mobilization arm of Consumer Reports. “The structure designed by Congress ensures that the director will be both independent and accountable.”
The original case that led to today’s hearing involves Laurel, N.J.-based PHH. In 2014, the CFPB charged the company with longtime violations of a federal lending law. PHH appealed the CFPB’s ruling within the bureau’s administrative law system, but lost its case and an appeal, and was ultimately fined a total of $109 million by the CFPB. It then sued the CFPB in federal court, claiming that Cordray, who had authority over the appeal process, wielded too much power.
A panel of three federal judges later voided the CFPB fine and agreed that the current CFPB structure was unconstitutional in the power it gave to the director. The arguments Wednesday, before the full, 11-judge court, revisited that question.
Recently, the Trump Justice Department weighed in, reversing the department’s position held during the Obama administration. "There is a greater risk that an 'independent' agency headed by a single person will engage in extreme departures from the president's executive policy," it states in an amicus brief.
What happens now?
It could be several months before there’s a ruling. “If the full appeals court agrees with its panel that the CFPB is currently unconstitutional but need not be abolished, the bureau will continue to exist, but President Trump will be able to remove Director Cordray for any reason or no reason," says Benjamin K. Olson, a partner with the Washington, D.C.-based firm Buckley Sandler, and former deputy assistant director for the office of regulations at the CFPB.
The court also could decide against the one-person directorship structure. That would allow the president to appoint a several-member board, like with the Federal Trade Commission and the Securities and Exchange Commission.
Observers say a definitive decision may not be handed down for more than a year. By then, Cordray will be finishing his five-year term, anyway, and President Trump could appoint a new director.
A governing board would be fine with many in the financial services industry.
"We believe such a structure would allow for a diversity of views and expertise, as well as providing continuity through different administrations, rather than having a regulation yo-yo each time the director changed," said Joe Gormley, assistant vice president and regulatory counsel for the Independent Community Bankers of America (ICBA), based in Washington, D.C.
The ICBA, whose members are regulated by the CFPB, is among more than a dozen organizations that have signed an amicus brief in support of PHH's position.
Consumers Union opposes a commission structure, saying it would lead to gridlock and inaction and would be less accountable than a single director.
Regardless of the decision the appeals court makes, the case could still be appealed to the U.S. Supreme court, which might not hand down a decision until spring of next year.
More from Consumer Reports:
Top pick tires for 2016
Best used cars for $25,000 and less
7 best mattresses for couples
Copyright © 2006-2017 Consumer Reports, Inc.
