Appeals Court Rules CFPB Structure Unconstitutional

The U.S. Court of Appeals for the D.C. District ruled last week that the Consumer Financial Protection Bureau’s one-director structure is unconstitutional.

In its 2-1 ruling, the court said in PHH Corp. v. Cons. Fin. Protection Bureau ( Corp. v. CFPB.pdf) that the independent agency’s structure, headed by Richard Cordray, violated the Constitution because of its single director, rather than through a multi-member board as are other regulatory authorities, such as the Securities and Exchange Commission.

Writing for the majority, Judge Brett Kavanaugh said the Bureau’s executive power in a “single, unaccountable, unchecked director” posed risk of arbitrary decision-making.

“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,” Kavanaugh wrote.

However, the ruling allows the CFPB to continue to function by giving the president the power to remove and supervise the director. “The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury,” the ruling said, noting that with the “for-cause provision” severed, President Barack Obama (and the next President, either Democrat Hillary Clinton or Republican Donald Trump) would now have the power to remove the director at will and to supervise and direct the CFPB director.

In the court case, mortgage lender PHH Corp., Mount Laurel, N.J., challenged a $109 million fine handed down by Cordray in which the CFPB alleged that PHH violated anti-kickback provisions in Section 8(a) of the Real Estate Settlement Procedures Act. Cordray said the fine represented illegal mortgage reinsurance premiums.PHH became the first institution to challenge a penalty handed down by the CFPB. In arguments before the court last April, PHH challenged the constitutionality of the CFPB’s structure and said the Bureau misinterpreted RESPA and also ignored a three-year statute of limitations under the law.

Mortgage Bankers Association President and CEO David Stevens, CMB, said the court issues an “extremely thoughtful” opinion.

“It addresses all of the key issues raised by the PHH case, including the proper interpretation of the Real Estate Settlement Procedures Act, the need for due process including reasonable statutes of limitations and the very constitutionality of the CFPB itself,” Stevens said. “All that said, we recognize that the CFPB does important work to protect consumers and that this case is far from settled and expect the government to continue to litigate it. We will continue to fight on behalf of our members, particularly on the RESPA and due process issues, as they go to the heart of a core argument that MBA has been making for several years now–that lenders need clear, consistent and reasonable interpretations of the rules in order to be able to best serve their borrowers and contribute to a smoothly functioning real estate market.”

MBA has long called for a five-person commission to administer the CFPB, similar to that of the SEC and other federal agencies.

Earlier this year, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, introduced H.R. 5983, the Financial CHOICE Act of 2016 (, of which a provision would restructure CFPB leadership with such a five-person commission (replacing the current single director.