October 13, 2016
Business as Usual with the CFPB
Law360 quoted me in CFPB Remains Strong Despite DC Circ. Single-Director Ruling (behind paywall). It reads, in part,
A blockbuster D.C. Circuit ruling Tuesday declaring the Consumer Financial Protection Bureau’s single-director leadership structure unconstitutional is unlikely to have a major effect on the bureau’s day-to-day operations and may make it easier for the agency to fend off critics who claim it lacks accountability, experts say.
The 110-page ruling from a split three-judge panel not only decried the leadership structure that Congress gave the CFPB in the 2010 Dodd-Frank Act, but made a change that allows the president to dismiss the bureau’s director at will, in a case that saw a $109 million judgment against PHH Corp. overturned. That move should provide the CFPB with more direct oversight, the D.C. Circuit said.
The change also does not touch the CFPB director’s power to issue rules and enforcement actions and oversee appeals of any administrative actions that the bureau brings. And because of that, the CFPB will not have to change much of what it does despite the harsh words in the opinion, said Frank Hirsch, the head of Alston & Bird’s financial services litigation team.
“I don’t think that the D.C. Circuit opinion was intended to create fundamental differences. I think the fact that the director can be dismissed at will now is the only substantive change,” he said.
Tuesday’s hotly anticipated ruling laid out in stark language many of the concerns that Republicans in Congress, the consumer financial services industry and other critics have long stated about the CFPB’s structure.
PHH was appealing the bureau’s $109 million disgorgement order over allegations the company referred consumers to mortgage insurers in exchange for reinsurance orders with its subsidiaries and reinsurance fees. The conduct, according to the CFPB, violated the Real Estate Settlement Procedures Act.
Included in PHH’s appeal was a constitutional challenge to the CFPB’s structure.
The opinion, written by U.S. Circuit Judge Brett Kavanaugh, laid out the potential dangers of giving one person the amount of authority that is vested in the CFPB director.
Judge Kavanaugh said that the bureau as constructed, with a single director that can only be fired for cause rather than the traditional multimember commission setup at independent regulatory agencies, vested too much power in one person to make decisions about new regulations, enforcement actions and appeals of those enforcement actions in administrative proceedings.
In its way, the CFPB director has authority rivaled only by the president, the decision said.
“Indeed, within his jurisdiction, the director of the CFPB can be considered even more powerful than the president. It is the director’s view of consumer protection law that prevails over all others. In essence, the director is the President of Consumer Finance,” Judge Kavanaugh wrote.
The judge also described at length why commissions were better for independent regulatory agencies than a single director, even though a single director can move more quickly on enforcement actions and rulemakings. Having a commission means that a director or chair will be constrained in their actions, potentially preventing abuses, the opinion said.
“Indeed, so as to avoid falling back into the kind of tyranny that they had declared independence from, the Framers often made trade-offs against efficiency in the interest of enhancing liberty,” Judge Kavanaugh wrote.
Those words were welcomed by the CFPB’s many critics.
“This is a good day for democracy, economic freedom, due process and the Constitution. The second-highest court in the land has vindicated what House Republicans have said all along, that the CFPB’s structure is unconstitutional,” Rep. Jeb Hensarling, the Texas Republican who chairs the House Financial Services Committee, said in a statement.
Hensarling and other Republicans in Congress have long pushed to put a commission atop the CFPB, and legislation Hensarling has introduced to replace Dodd-Frank includes that change.
Backers of the CFPB have long rejected the argument that the bureau is unaccountable, noting that it is subject to notice and comment for rulemaking, its rules are subject to judicial and other reviews, and the director makes regular appearances before Congress.
But instead of installing a commission or eliminating the CFPB altogether because of the constitutional issue, as had been requested by PHH and other, largely conservative activist groups who filed amici briefs, Judge Kavanaugh simply severed the portion of Dodd-Frank that said the bureau’s director could be fired only for cause.
The result is that now the CFPB director is subject to the same employment standard as a cabinet secretary, and can be fired at the president’s whim.
“The president is a check on and accountable for the actions of those executive agencies, and the president now will be a check on and accountable for the actions of the CFPB as well,” Judge Kavanaugh said, adding that all of the CFPB’s previous decisions taken by its current director, Richard Cordray, remained in place.
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But even with that uncertainty hanging over the bureau, it is unlikely that the ruling will have much of an effect on the way the CFPB currently operates.
“The industry and consumer advocates can expect to see much of the same,” said David Reiss, a professor at Brooklyn Law School.| Permalink