On Oct. 11, the U.S. Court of Appeals for the D.C. Circuit deemed the Consumer Financial Protection Bureau (CFPB) “unconstitutionally structured” and overturned its enforcement action, including a $109 million penalty, against PHH Corp., a New Jersey-based mortgage lender. Despite its rulings, the D.C. Circuit made clear that the CFPB will continue to operate and perform its duties.
The CFPB originally fined PHH for an alleged kickback scheme whereby PHH referred customers to insurers who then purchased reinsurance from a PHH subsidiary. In seeking to vacate the enforcement order, PHH made both constitutional and statutory arguments.
PHH argued that the CFPB’s status as an independent agency headed by a single director violates Article II of the U.S. Constitution. To analyze this issue, the D.C. Circuit employed a “history-focused approach” focusing on separation of powers decisions from the Supreme Court.
The D.C. Circuit observed that “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” The D.C. Circuit added that the CFPB’s structure lacks critical checks and constitutional protections, despite the agency wielding vast power over the U.S. economy. Continue Reading