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CFPB Ruled Unconstitutional, but Can Still Operate
Wednesday, October 12, 2016 6:45 AM

A federal appeals court on Tuesday ruled that the organization of the CFPB is unconstitutional since it's led by a single person; however, the agency may continue to operate. The bureau The CFPB is permitted to operate, but must do so as an executive agency similar to other executive agencies headed by a single person, such as the U.S. Department of Justice and Treasury, according to the court ruling. 

“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,” the U.S. Court of Appeals for the District of Columbia said, in its ruling.

The ruling came in a case in which, PHH, a mortgage lender, was the subject of $109 million penalty from the CFPB. The appeals court voided that penalty and sent the case back to a lower court for review.

Opponents of the CFPB, including credit unions and Republican members of Congress, have argued that the agency was unconstitutional ever since it was established by Dodd-Frank. Congressional Republicans have attempted to reorganize the CFPB, with the agency being supervised by a commission. However, those efforts have failed.

The appeals court agreed that the director has too much power. “The Director enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President,” the court said.

A CFPB spokesperson said agency officials disagreed with the ruling, but vowed to continue their work. “The Bureau believes that Congress’s decision to make the Director removable only for cause is consistent with Supreme Court precedent and the Bureau is considering options for seeking further review of the Court’s decision,” the spokesperson said.

Cornerstone Credit Union League CEO Dick Ensweiler praised the ruling. "It has become obvious that the Director of the CFPB reports to and listens to no one," he said. "The Director's unwillingness to concede that credit unions are different and his refusal to provide exemptions demonstrate the agency's arrogance and indifference to credit unions that have historically served consumers so well. A change in structure, from one-person leadership to a five-person commission would be a positive and welcome development."

CUNA President Jim Nussle also applauded the ruling, saying it would allow the establishment of a meaningful check and balance and bring accountability to the director's role. “This ruling confirms CUNA’s concern that the structure of the CFPB is flawed and that an unchecked, independent director who answers to no one can’t lead to good public policy. CUNA continues to support a five-person commission for the CFPB instead of its current structure.”