The CFPB is appealing an October appellate court decision that found the structure of the agency unconstitutional because it is governed by a single director who can only be removed by the president for cause.
The agency on Nov. 18 asked the U.S. Court of Appeals for the District of Columbia to take up the case. A panel of the court ruled the agency’s structure unconstitutional on Oct. 11. The new appeal asks the full appellate court to consider the ruling.
“A panel of this Court has rendered a dramatic and unprecedented ruling that purports to override Congress’s explicit determination to create an ‘independent bureau’ to exercise regulatory and law enforcement in a segment of the economy,” agency attorneys stated in the appeal.
They go on to say the case “may be the most important separation of powers case in a generation.”
The ruling came in a case in which PHH, a mortgage lender, was the subject of $109 million penalty from the CFPB. The appeals court voided that penalty and sent the case back to a lower court for review.
If the ruling stands, the agency’s director could be removed by the president for any reason. And the next step for any appeal would be the U.S. Supreme Court.
The case became even more important since President-elect Donald Trump is an avowed opponent of the Dodd-Frank Act, which created the CFPB. Democratic nominee Hillary Clinton had vowed to fight any effort to weaken Dodd Frank and had expressed support for the CFPB.
In its appeal, agency attorneys said the ruling conflicts with Supreme Court precedents. They go on to say that because the agency’s director serves a five-year term, the president will usually be able to choose a director of his or her own choosing.
The case adds pressure to an agency that is under fire from many sides on and off Capitol Hill.
House Republicans have included in FY17 funding measures provisions that would restrict the agency’s ability to issue rules in several areas, such as binding arbitration agreements and payday lending. Senate appropriators have not included such provisions in their version of the funding bills.
In addition, House Financial Services Chairman Jeb Hensarling (R-Texas) has introduced legislation that would repeal much of Dodd-Frank. The legislation would make the agency subject to the annual appropriations process and convert it to a five-member commission.
Hensarling has written to CFPB Director Richard Cordray saying that considering the appeals court ruling, the CFPB should be required to follow all executive orders, including those that require a cost-benefit analysis of rules.
Last week, House Majority Leader Kevin McCarthy (R-Calif.) and House Republican committee chairmen sent a letter to federal agencies asking that they stop issuing new rules during the last few months of the Obama Administration.
Supporters of the CFPB, most notably Sen. Elizabeth Warren (D-Mass.) has vowed to fight any efforts to weaken the agency’s powers.
At the same time, credit union trade groups have called on the CFPB to implement a moratorium on all new rules.
NAFCU President/CEO Dan Berger cited the appeals court ruling, saying that until the legality of the agency is established, no new rules should be issued.
CUNA President/CEO Jim Nussle has said that the CFPB should stop all new rules because of the change in presidential administrations.
However, the CFPB late last week released its updated regulatory agenda. That agenda includes a schedule of rules the agency expects to issue. The agenda does not include a timetable for release of the agency’s controversial payday lending rules.
But the agenda states that the CFPB expects to issue its rules banning the use of mandatory arbitration agreements in February 2017.
