U.S. Court of Appeals Rules CFPB Structure Unconstitutional

On October 11, The U.S. Court of Appeals for the District of Columbia Circuit ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional, on the basis that it violates the Constitution’s separation of powers. The bureau, authorized in the 2010 Dodd-Frank Act, is headed by a single director, Richard Cordray, who can only be removed for cause, defined as, “inefficiency, neglect of duty, or malfeasance in office.”

The ruling comes in a lawsuit filed by New Jersey mortgage lender PHH Corp. In 2014, the CFPB punished the company for accepting what the agency determined to be kickbacks from mortgage insurers. After an internal CFPB judge initially imposed a $6.5 million fine, Cordray overturned the penalty and instead imposed a $109 million penalty. The lawsuit claimed that Cordray overstepped his authority, and challenged the legitimacy of the agency’s structure.

The U.S. Court of Appeals ruled that the CFPB’s structure is unconstitutional and threw out the $109 million fine. In the ruling, Judge Brett Kavanaugh wrote, “In light of the consistent historical practice under which independent agencies have been headed by multiple commissioners or board members, and in light of the threat to individual liberty posed by a single-Director independent agency…We therefore hold that the CFPB is unconstitutionally structured.”

However, the court did not order the organization to shut down. Instead, the remedy will be to allow the CFPB to continue to operate by giving the president the power to remove the director at will and to supervise and direct the director. The decision states, “The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury.”

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Jake Steele is a sophomore at Georgetown University studying finance and management. During his time at Consumers’ Research, he has examined developing trends in finance and technology.

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