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The New Administration’s Plans for the CFPB Take Shape

Philip R. Stein

For those who have been wondering—as I did in a previous post—what the new presidential administration would mean for the Consumer Financial Protection Bureau (CFPB), an agency that has been in Republicans’ crosshairs virtually since it came into existence, we now have at least the beginnings of a concrete answer. Claiming that the CFPB’s leadership structure is unconstitutional, the Trump administration asked the U.S. Court of Appeals for the D.C. Circuit last week to allow the president to fire the bureau’s director, Richard Cordray, at will. The administration did not go so far as to ask the court to authorize elimination of the agency, however.

In its brief to the appeals court, the U.S. Department of Justice (DOJ) argued that an October split ruling by a three-judge panel of the D.C. Circuit correctly determined that the CFPB’s single-director leadership structure violated the U.S. Constitution’s separation of powers clause. And, according to the DOJ, giving the president the power to fire the director at will rather than for cause, as was required by the 2010 Dodd-Frank Act, would serve to remedy the alleged structural problem.

The DOJ stopped short of the relief sought by PHH Corp., the mortgage servicer that responded to a $109 million penalty assessed against it by the CFPB by suing the bureau. PHH, alleging constitutional problems related to the CFPB, has called for the CFPB’s complete elimination. Indeed, the DOJ stated that taking that course of action would be an overreach. “The panel correctly concluded that the proper remedy for the constitutional violation is to sever the provision limiting the president’s authority to remove the CFPB’s director, not to declare the entire agency and its operations unconstitutional,” the DOJ’s brief asserted. The DOJ also stated that, “[c]iting one legislator’s statement that Congress sought to create a ‘completely independent’ agency, PHH speculates that Congress would have preferred to have no agency at all in the absence of a for-cause removal provision. But Congress never expressed this sentiment, and the Dodd-Frank Act’s severability clause underscores that Congress would not have intended this result.”

The Obama administration backed the CFPB in its legal battle against PHH, but in a motion filed earlier this month, the Trump administration signaled that it would take a different tack.

Dodd-Frank gave the CFPB director a five-year term, meaning that a president could theoretically not have the ability to appoint a new director during a single term, the brief said.

“An agency where a president lacks control over both back-end removal and front-end appointment represents a further departure from the constitutional design,” the DOJ said.

The heart of the case at issue is a dispute related to the CFPB’s $109 million judgment in July 2015 against PHH, a New Jersey-based mortgage company. PHH allegedly referred consumers to mortgage insurers in exchange for reinsurance orders with PHH subsidiaries and reinsurance fees. That violated the Real Estate Settlement Procedures Act (RESPA), according to the CFPB.

The D.C. Circuit’s October decision eliminated that penalty, arguing that CFPB Director Richard Cordray misinterpreted a U.S. Department of Housing and Urban Development interpretation of RESPA that had been in place for decades.

When the D.C. Circuit last month agreed to an en banc review requested by the CFPB, the appeals court vacated the October decision. Plainly, however, that decision is gone but not forgotten, with more fireworks presumably in store in this major lawsuit.

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