Late last Friday afternoon the Consumer Financial Protection Bureau (CFPB) filed a Petition with the Court of Appeals for the District of Columbia Circuit asking the court for a rehearing “en banc” in the PHH Corp. v. Consumer Financial Protection Bureau case (United States Court of Appeals, D.C. Cir., Case No. 15-cv-01177). In that case, on October 11, 2016, the Court of Appeals ruled that the CFPB's single director structure was unconstitutional.

(Editor’s Note: In the Court of Appeals many cases are originally decided by a panel of 3 Judges. That is what occurred in this case. After the panel has heard the appeal and issued its opinion, either party to the appeal may choose to request another hearing “en banc” in most appeals courts.  This request asks the court to hear the case again, this time with all of the court’s judges listening to the case.)

In the October 11th decision (by a 2-1 ruling), the court ruled that the structure of the independent agency created by the Dodd-Frank Wall Street reform law was unconstitutional because its director has wide-ranging power with little oversight since the CFPB director was removable by the President only for cause.

In the original decision the three judge panel ruled:

“Because the CFPB is an independent agency headed by a single Director and not by a multi-member commission, the Director of the CFPB possesses more unilateral authority – that is, authority to take action on one’s own, subject to no check – than any single commissioner or board member in any other independent agency in the U.S. Government. Indeed, as we will explain, 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 Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law. That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.

In light of the consistent historical practice under which independent agencies have been headed by multiple commissioners or board members, and in light of the threat to individual liberty posed by a single-Director independent agency, ……we hold that the CFPB is unconstitutionally structured.” (Emphasis added)

In the 15-page (132 pages with Exhibits) Petition for en banc rehearing the CFPB calls the court’s decision a “dramatic and unprecedented” one that “purports to override Congress’s explicit determination to create 'an independent bureau' to exercise regulatory and law enforcement authority in a particular segment of the economy. [It] sets up what may be the most important separation-of-powers case in a generation, since the independent counsel statute was challenged in Morrison v. Olson, 487 U.S. 654 (1988).”

The CFPB argued,

“This decision also presents an issue of exceptional importance because it unduly limits Congress’s flexibility to respond to 'the various crises of human affairs,' McCulloch v. Maryland, 17 U.S. 316, 415 (1819), by creating independent administrative agencies headed by a single director. And it may affect not only the Bureau but also other agencies headed by a single director removable only for cause (Social Security Administration, 42 U.S.C. 902(a); Federal Housing Finance Agency, 12 U.S.C. 4512(b)(2); Office of Special Counsel, 5 U.S.C. 1211(b)).”

insideARM Perspective

The petition for rehearing has enormous implications for the future of the CFPB and several specific, critical issues. Since the outcome of the November 8th elections speculation on the potential removal of CFPB Director Richard Cordray by President-elect Trump has been rampant. There has also been significant discussion in the press that rulemaking on Mandatory Arbitration and Pay Day lending may be in jeopardy with the change in administration and GOP control of Congress. Additionally, debt collection rulemaking may be slowed and influenced by a different Director.

It seems clear that politics has greatly influenced the CFPB decision to seek a rehearing. It is no secret that Republicans want to roll back and/or make sweeping changes to the Dodd-Frank Act that created the CFPB. Democrats would like to preserve the CFPB as it presently exists. Making significant changes or successfully getting a new CFPB director confirmed (assuming the current one is removed or resigns) will not be an easy task. Reducing consumer protections is not a popular platform.

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