The CFPB and it’s Structure Held Constitutional

There has been litigation and  public concern about the structure of the Consumer Financial Protection Bureau (“CFPB”) in that a single-director model was created rather than multiple directors at other federal agencies.  In the earlier action by PHH the D.C Circuit had held, among other issues, that the single-director status and only the removal of this director for “cause” was unconstitutional.  The United States Court of Appeals for the D.C. Circuit, reversed the lower court and held that the single-director structure of the CFPB and the structure which require cause to remove the director, are constitutional.  See PHH Corp. et al., v. CPFB, Case No. 15-1177 (D.C. Cir. Jan. 31, 2018).  The court explained this reversal by stating, in part, Congress established the independent CFPB to curb fraud and promote transparency in consumer loans, home mortgages, personal credit cards, and retail banking. See 12 U.S.C. § 5481(12). The Supreme Court eighty years ago sustained the constitutionality of the independent Federal Trade Commission, a consumer-protection financial regulator with powers analogous to those of the CFPB. Humphrey’s Executor v. United States, 295 U.S. 602 (1935).  The Court has since reaffirmed and built on that precedent, and Congress has embraced and relied on it in designing independent agencies. We follow that precedent here to hold that the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act shielding the Director of the CFPB from removal without cause is consistent with Article II.  What does this decision his mean for my mortgage, fintech and specialty lender clients?  I believe this decision will be appealed, but the CFPB is still a functioning agency.  I always advise my clients to stay current on licensing issues and current legal issues concerning business practices in the industry.

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