Court Upholds Consumer Financial Bureau Structure Over Trump, Business Complaints

By | January 31, 2018

The Consumer Financial Protection Bureau director’s job regained a measure of security Wednesday when a U.S. appeals court said the agency head can only be fired for “inefficiency, neglect of duty, or malfeasance in office,” in a blow to the Trump administration.

Replacing an earlier ruling that the CFPB’s structure was unconstitutional and that there were insufficient checks on the power of its director, the Washington-based appeals court concluded that Congress meant to protect the agency from the ebb and flow of politics and that its director should only be dismissed for cause.

The split ruling comes too late for the intended target of the legal challenge, Democrat Richard Cordray, who resigned the directorship in November to run for governor of Ohio.

It will likely be appealed to the U.S. Supreme Court by both the Trump administration, which had sought more control over the bureau director, and by PHH Corp., the New Jersey mortgage company that sued the CFPB in 2015 after being hit with $109 million in fines for violating federal real estate transaction rules.

While the fines were thrown out, the original panel didn’t go as far as PHH lawyer Theodore Olson had asked by ordering the agency’s dissolution. The CFPB was created under the 2010 Dodd-Frank Wall Street reform legislation with the intent to protect ordinary consumers from predatory practices of banks, mortgage and credit card companies.

Creation of the CFPB was championed by U.S. Senator Elizabeth Warren. Cordray, a Democrat and former Ohio Attorney General, was later appointed to lead it for a five-year term that would have expired in July.

Job Loss

His resignation sparked a fight over who would serve as acting director until a permanent replacement is nominated by President Donald Trump and then 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 initial legal challenges to that move.

“There has never been an agency like this,” Olson told the 11-judge panel in May. That tribunal consisted of six judges who were Democratic appointees and five picked by Republicans. Olson, citing the CFPB’s power to enforce 19 consumer statutes, its non-Congressional funding source and Cordray’s insulation from dismissal, asserted he bureau was “manifestly unconstitutional.”

The judges peppered him, CFPB lawyer Lawrence DeMille-Wagman and a Justice Department attorney with questions arising from Olson’s contention the Cordray-led CFPB actually took oversight powers away from a president.

DeMille-Wagman said it didn’t.

Next Director

In court, the CFPB lawyer said the president’s inability to select the next director at the start of a term in office was functionally no different than his inability to appoint a majority of the Federal Reserve whose board members serve staggered 14-year terms.

“It’s not a nothing,” DeMille-Wagman said of the president’s ability to remove the CFPB’s director only for cause. “It’s a power the president does have.” Still, when pressed, he was unable to cite an instance when any president attempted to exercise it.

The Trump administration said in court papers that it wanted the power to fire the director without necessarily disbanding the agency.

“The quintessential hallmark of executive power is the ability to act with vigor and dispatch,” administration attorney Hashim Mooppan said in court. 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).

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Latest Comments

  • February 1, 2018 at 4:55 pm
    Agent says:
    Sure glad 20 regulations are going away for every one written now. It will spur the economy to greater heights in the next 7 years.
  • January 31, 2018 at 4:27 pm
    Cut the Bias says:
    I am definitely over-simplifying it, but that is on purpose. Obviously, Republicans don't want to outright screw consumers and Democrats don't want to interrupt free enterpris... read more
  • January 31, 2018 at 4:10 pm
    David says:
    You oversimplify and obfuscate when you state as fact that "Democrats want to protect consumers. Republicans want to protect corporations." The law of unintended consequences... read more

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