(Corrects spelling in 4th paragraph to BuckleySandler law firm)
By Lisa Lambert and Nate Raymond
WASHINGTON/NEW YORK Oct 11 A federal appeals
court ruled on Tuesday that the structure of the U.S. agency
charged with guarding consumers' finances is unconstitutional,
fueling an election-year political fight over one of the
signature government responses to the 2007-09 financial crisis.
The U.S. Court of Appeals for the District of Columbia
Circuit threw out a $109 million penalty against PHH Corp in
2014, saying the structure of the Consumer Financial Protection
Bureau gives its sole director too much power.
The three-judge panel, though, also sought to remedy the
problem by giving the president the power to fire the director,
which it said made the position similar to the Attorney General
and other constitutionally sanctioned agency heads who answer to
the White House.
"The CFPB has dodged the biggest bullet, which is to be
declared unconstitutional and have all its prior rules and
regulations voided," said Andrew Sandler, chairman of
BuckleySandler law firm.
But he added "lawyers will be looking hard," at past agency
The CFPB is expected to request the entire appeals court
conduct an "en banc" review of the case. The losing side will
likely appeal to the Supreme Court.
The ruling will affect other lawsuits against the agency in
lower courts, but should not affect the government's $190
million settlement last month of fraud charges with Wells Fargo
& Co. The CFPB was involved in that case.
PHH had objected to the CFPB's allegations it violated the
Real Estate Settlement Procedures Act by referring customers to
mortgage insurers who in turn bought reinsurance from one of its
The judges ruled the lender was within the law and also that
the CFPB was wrong to say its administrative action did not need
to respect a three-year statute of limitations on the alleged
U.S. Circuit Judge Brett Kavanaugh wrote the current CFPB
structure "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 2010 Dodd-Frank Wall Street reform law created the
bureau in response to abuse of borrowers that preceded the
financial crisis. Republicans objected to a clause in the law
that the director could only be fired "for cause" and they
foiled President Barack Obama's first choice of CFPB director,
now Senator Elizabeth Warren.
Obama appointed Richard Cordray director while Congress was
in recess. Republicans have introduced legislation to put a
commission in charge of CFPB and have Congress appropriate its
funding. Currently, the Federal Reserve backs the agency.
Democrats say those changes would destroy the agency's
independence. They also worry that if Republican Donald Trump
wins November's presidential election, the billionaire will tell
Cordray, "you're fired," and appoint a head who brings the
agency's work to a halt.
Members of both parties released a torrent of tweets and
statements on Tuesday's court ruling.
Republican Jeb Hensarling, who chairs the House Financial
Services Committee, called CFPB "the most powerful and least
accountable Washington bureaucracy in American history."
Warren said "the ruling makes a small, technical tweak to
Dodd-Frank and does not question the legality of any other past,
present, or future actions of the CFPB." She called Republican
reorganization efforts "attempts fostered by big banks to
cripple an agency."
The decision is likely to lead more companies to challenge
the CFPB's enforcement actions in the future, said Ballard Spahr
attorney Alan Kaplinsky, who closely follows the bureau.
PHH said in a statement that it hoped "the court's opinion
will provide greater certainty to the entire mortgage industry."
(Reporting by Lisa Lambert in Washington and Nate Raymond in
New York; Editing by Chizu Nomiyama and David Gregorio)