The Consumer Financial Protection Bureau (CFPB) survived a constitutional challenge and will remain in business, though a federal appeals court took away powers from its director and tossed out a $109 million penalty against a mortgage firm.
The long-awaited decision was a blow to the agency, which was created in the wake of the financial crisis to regulate mortgages, credit cards and other products directed at consumers. Ever since, it’s been the subject of almost constant criticism from Republicans and the industry, most recently when it scored its highest-profile victory to date, penalising Wells Fargo & Co. for opening accounts without clients’ knowledge. The appellate court found the CFPB to be “unconstitutionally structured” because the autonomy vested in director Richard Cordray—who could only be fired by the president and for cause—was a “gross departure from settled historical practice.”
But the three-judge panel rejected calls to dismantle the agency, instead voiding the for-cause provision and making the director removable by the president at any time and for any reason. “This agency was on its own,” Ted Olson, former US solicitor general and the lawyer for the mortgage company, PHH Corp. said in a phone interview. “Now it will have to respond to the guidance, leadership, oversight of whoever is the president.”
In a further blow to the bureau’s authority, the court also found that CFPB violated the mortgage company’s due process rights by reversing a long-standing interpretation of real estate law without notice, and then retroactively applying it standard to impose violations.
