The structure of the Consumer Financial Protection Bureau (CFPB) was ruled constitutional today.
Unlike other independent agencies not under the direct supervision of Congress or the president, the CFPB was given a single director instead of a panel of three or five commissioners. In theory, that was meant to insulate the bureau from political influence. In practice, it made the director one of the most powerful people in the federal government. Last year, a three-judge panel on the D.C. Circuit Court ruled the CFPB's structure was unconstitutional, but the bureau was allowed to continue operating while the case was appealed to the full court.
The en banc panel of the court upheld the CFPB's structure in a split decision issued today. In reversing the earlier ruling, the court accepted the argument that Congress could create a uniquely structured agency as a way to shield the bureau from political influence.
"Congress's decision to provide the CFPB director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will," Judge Cornelia Pillard wrote for the majority.
Although the court upheld the CFPB's structure, it tossed out penalties that the CFPB had issued to PHH Corp., a mortgage services firm and the plaintiff in the case.
This ruling might not be the last word on the CFPB. Ilya Shapiro, a senior fellow in constitutional studies at the Cato Institute, thinks the Supreme Court should take the case. The D.C. Circuit ruling was disappointing but not surprising, Shapiro says, because the court has a history of being deferential to the government's case.
"The director of the CFPB reports to no one but himself, and, under the terms of Dodd-Frank, can be removed by the president only for cause," says Shapiro. "This structure violates core principles of separation of powers and allows the agency to exist unfettered by any accountability to the people."
The degree of control the president can exert over the CFPB remains an open question. Earlier this year, after Richard Courdray stepped down as director to run for governor of Ohio, there was a week-long legal spat over whether Donald Trump had the authority to appoint a new director to the agency or whether Courdray's second-in-command would take over. Trump's pick, Mick Mulvaney, prevailed in the end.
As long as Mulvaney—a longtime critic of the CFPB dating back to his time in Congress—is in charge, the CFPB is likely to take a more limited view of its role as chief enforcer of the rules Congress passed after the 2008 financial collapse. Still, the constitutional question at the heart of the case will remain important for the long term. In just a few short years, the CFPB enforced regulations against mortgage brokers and powerful Wall Street banks but also used its unaccountable power to target small businesses, including payday lenders and community banks.
In the earlier ruling that went against the CFPB, Judge Brett Kavanaugh wrote that "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."
Today's ruling gives future heads of the CFPB license to wield that power with little restraint, says Iain Murray, vice president at the Competitive Enterprise Institute. Murray's group has filed its own constitutional challenge against the CFPB.
"This outrage to the spirit of the Constitution needs to be corrected by the Supreme Court and by Congress, which made the original mistake in giving the CFPB so much power with so little accountability," says Murray.