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U.S. Court of Appeals Declares CFPB Structure Unconstitutional

The U.S. Court of Appeals for the District of Columbia declared the structure of the Consumer Financial Protection Bureau as unconstitutional. The court ruled the structure put too much power in the hands of one director.

The ruling came from a lawsuit in which mortgage lender PHH Corp. claimed the CFPB overstepped its limits by extending the statute of limitations for a case involving violations in connection with a captive mortgage reinsurance arrangement.
According to the National Association of Realtors, CFPB Director Richard Cordray disagreed with interpretations by an administrative law judge relying on a 1997 HUD interpretive letter and expanded the monetary value of the disgorgement to $109.2 million from $6.4 million.

PHH argued that Cordray’s action violated Article II of the U.S. Constitution, the article defining the power of the executive branch. Judge Brett Kavanaugh, writing in his opinion, stated that “no independent agency exercising substantial executive authority has ever been headed by a single person.”

The ruling means the CFPB director now serves at the will of the President. The decision also removed the larger penalty from the PHH fine. The Consumer Bankers Association supported the decision, but again called on Congress to change the agency’s organization so that it will be run by a five-person, non-partisan board. This is the same structure as other regulators, such as the Federal Trade Commission and the Securities and Exchange Commission.

Sen. Elizabeth Warren, the CFPB’s chief architect, 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,” she said.

Sen Sherrod Brown of Ohio, another vocal supporter of the CFPB, said  “The CFPB’s structure works – just look at the critical role CFPB played in holding Wells Fargo accountable for customer abuses. Despite the industry’s claims, the CFPB is subject to extensive oversight and it is one of the most accountable financial agencies.”

Story by Jeffrey Bellant, Oct 17 2016


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