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Removing Barriers Blog

D.C. Court of Appeals Questions Constitutionality of CFPB Structure
Posted October 12, 2016 by CUNA Advocacy

In a landmark decision, changing the accountability structure of the CFPB, the D.C. Court of Appeals ruled this week in favor of PHH Corp., and called into question the constitutionality of the CFPB. It also struck language in the Dodd-Frank Act that says the CFPB Director can only be removed for cause. The court wrote, 

“Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency. By “unilateral power,” we mean power that is not checked by the President or by other colleagues. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.” 

The ruling now allows the President to remove the Director of the CFPB “at will” which is more in line with other agencies. It also means that depending on the outcome of the 2016 Presidential election, a new President now has the authority to remove the CFPB Director. 

CUNA has been closely following this case, and applauded the ruling that will establish a meaningful check and balance and bring needed accountability to the director’s role. The ruling confirms CUNA’s concern that the structure of the CFPB is flawed and that an unchecked, independent director who answers to no one can’t lead to good public policy.   

CUNA has long supported changing the structure of the CFPB to a five-person commission, instead of its current structure, which could allow a single person’s ideology to impact millions of consumers and those in the financial services marketplace. 

Another major part of this ruling is that the CFPB must abide by statute of limitations under the Real Estate Settlement Procedures Act (RESPA). CFPB argued statute of limitations did not apply to administrative actions, and the court rejected that theory. This provides important protection to credit unions that can now rely on the statutorily set statute of limitations under RESPA, and potentially other consumer financial laws they are subject to.  

Other important aspects of the ruling are that: 

PHH is allowed to have captive reinsurance arrangements so long as the amount paid by the mortgage insurer for the reinsurance does not exceed the reasonable market value of the reinsurance; and 

CFPB departed from the consistent prior interpretations issued by the Department of Housing and Urban Development and then retroactively applied its new interpretation of the Act against PHH, thereby violating PHH’s due process rights.  (In other words, if you’re going to change the rules, do so through notice and comment). 

The CFPB is very likely to request an "en banc" review of the case, and will likely appeal any decision not in its favor.