CFPB Comes Under Fire from US Court of Appeals

The Consumer Financial Protection Bureau (CFPB) has done the hard work of protecting US consumers since it was created in 2010. Now a U.S. Court of Appeals decision has ruled the CFPB’s structure unconstitutional, subjecting the agency and consumer safety to the political system.

In 2010, in the Dodd-Frank Act, Congress recognized the need for an independent agency to protect consumers’ rights. It created the Consumer Financial Protection Bureau and assigned it to enforce 19 federal consumer protection laws, regulating everything from banking and finance to student loans and credit cards.

Congress has created other similar independent agencies before, like the Federal Communications Commission and the National Labor Relations Board. But the CFPB was different. Other agencies are run by a multi-member board of directors, but CFPB has a single director, who can only be fired for cause.

That seemingly small structural difference caused big constitutional problems in the eyes of the U.S. Court of Appeals for the D.C. Circuit. On October 11, 2016, the court published an opinion in PHH Corp v Consumer Financial Protection Bureau, which framed the matter as “a case about executive power and individual liberty.”

The court called independent agencies “a headless fourth branch of the U.S. Government” with “enormous power over the economic and social life of the United States.” The court continued:

“Because of their massive power and the absence of Presidential supervision and direction, independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”

Where there are multi-person boards, their various members limit one another. But the court said that the Director of the CFPB had no such check of its power:

“[T]he 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.”

That created an unconstitutional violation of the Separation of Powers, the court said. To allow the CFPB to continue its important work, the court “severed” the part of the law that said the Director could not be fired except for cause. By doing so, it subjected the agency to the political process – allowing each successive president to remove the Director at will, and to supervise the Director’s actions.

Consumer protection should transcend politics. By giving the President the authority to remove the CFPB Director at will, the court has put US residents’ rights up for majority vote.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Office, PC, in Birmingham, Michigan. If you are being harassed by debt collectors, contact The Liblang Law Office, PC, today for a free consultation.