Court Blasts CFPB, Says Director Has Too Much Power

The Consumer Financial Protection Bureau. (Rob Kunzig/Morning Consult)

A panel of federal judges on Tuesday struck a blow to the Consumer Financial Protection Bureau’s current governance structure by ruling that Congress gave the agency’s director too much power.

The CFPB, meanwhile, is considering its next steps in the legal process.

Brett Kavanaugh, a judge on the U.S. Court of Appeals for the District of Columbia Circuit, wrote in an Oct. 11 opinion that the CFPB director position represents a “combination of power that is massive in scope, concentrated in a single person, and unaccountable to the president.”

He wrote the majority opinion for a group of three judges that agreed that the CFPB had overstepped its authority in hitting the residential mortgage lender PHH Inc. with a $109 million fine, and reversed the CFPB’s fine.

“Never before has an independent agency exercising substantial executive authority been headed by just one person,” Kavanaugh, a George W. Bush appointee, wrote.

Kavanaugh cited Supreme Court precedent that he argued allows the court, under certain circumstances, to remove language from a statute without affecting ongoing agency operations. Under the 2010 Dodd-Frank Act, which established the CFPB, the president can only remove a director for “for inefficiency, neglect of duty, or malfeasance in office.”

By striking that phrase, the decision gives the president the authority to remove the CFPB’s director for any reason. But Kavanaugh made it clear in the opinion that he prefers a congressional tweak to turn the agency into a multi-member commission.

“The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power and a far greater threat to individual liberty, than does a multi-member independent agency,” Kavanaugh continued. “In lieu of presidential control, the multi-member structure of independent agencies acts as a critical substitute check on the excesses of any individual independent agency head — a check that helps to prevent arbitrary decisionmaking and thereby to protect individual liberty.”

The decision marks a victory for CFPB critics who have protested the powers granted to the director’s position, which Richard Cordray currently occupies. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) included a shift to nonpartisan commission governance as a key part of his Dodd-Frank replacement bill, known as the Financial CHOICE Act.

Industry groups welcomed the decision. Jim Nussle, the president and chief executive officer of the Credit Union National Association, said in a statement that “it will establish a meaningful check and balance and bring needed accountability to the director’s role.”

A CFPB spokeswoman said the bureau “is considering options for seeking further review of the Court’s decision.”

“In the meantime, as the court expressly recognized, the bureau will continue its important work,” the spokeswoman said in an emailed statement. “Today’s decision will not dampen our efforts or affect our focus on the mission of the agency.”

In a statement, Hensarling said that it is “absurd that a judicial opinion was necessary” to curb the agency’s power.

“The CFPB has an important mission,” Hensarling said. “Properly designed and led, it is capable of great good. But the bureau’s bizarre and defective structure allows it to evade the time-tested checks and balances that are necessary to hold it or any other government bureaucracy accountable.”

Rep. Maxine Waters, the top Democrat on the committee, brushed off the ruling. “After years of industry and Republican attacks falsely claiming that the CFPB is unconstitutional and that it must be eliminated, it’s no surprise that a small panel of the country’s most conservative judges has made such an anti-consumer ruling,” she said in a statement.

Sen. Elizabeth Warren (D-Mass.) was similarly dismissive in her statement. Warren — whose reputation as the architect of the CFPB is referenced in the court opinion — said the decision “will likely be appealed and overturned.”

“But even if it stands, the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present or future actions of the CFPB,” Warren said.

In his opinion, Kavanaugh said that the enacted Dodd-Frank language did not reflect Warren’s proposal for a consumer agency because the CFPB is not a multi-member commission. Warren, though, said in her statement that Kavanaugh’s reasoning “bizarrely relies on a mischaracterization of my original proposal for a new consumer agency.”

Correction: A previous version of this story incorrectly identified the court that issued the decision.

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