CFPB May Have Finally Come Face to Face with a Major Threat to its Authority

It appears that federal judges may be open to the concept of the Consumer Financial Protection Bureau being unconstitutional as things stand right now. And this may mean that these judges are likely to make a decision that will set the bureau back a bit. The CFPB – Senator Elizabeth Warren’s consumer watchdog group – was created by way of the 2010 Dodd-Frank law that was meant to reform the financial industry. And the bureau has proven to be a major nuisance to that very industry from almost day one.

It may turn out, however, that the CFPB gets changed up quite a bit. The bureau has had its very constitutionality challenged via arguments that were given to a panel of U.S. Court of Appeal judges on the District of Columbia circuit. This is where the Consumer Financial Protection Bureau will have to defend the huge $109 million fine that it imposed on a company called PHH Corporation. The CFPB accused this mortgage lending company of being part of a large financial kickback operation.

Two circuit judges – Raymond Randolph and Brett Kavanaugh were there to hear the arguments. There is a third member of this group of judges – Karen Henderson – but she was not able to attend. The three judges were all appointed by Republicans.

The root cause of the hearing was to decide if the very structure of the Consumer Financial Protection Bureau – an organization led by a single person who can only be released from duty for some very specific reasons – is in violation of the Constitution’s separation of powers due to it being unaccountable to the United States political branches. To make a long story short and according to the primary counsel for PHH Theodore Olson, it is alleged that there is no precedent for a group like the CFPB and that this group actually possesses more power than the powers of Congress and the POTUS put together.

Olson is one of the most famous litigators in the United States. His claim is that the limiting of the president’s power to directly remove the director of the CFPB deprives the executive branch of our government from having any meaningful power over the bureau. He also argued that the funding the CFPB gets – funding that is provided by the Federal Reserve – keeps the CFPB safe from the reach of Congress as well. The end result that Olson argues for is that the CFPB is now unaccountable to the country in such a drastic way that it is getting close to being “the very definition of tyranny.”

Olson concluded this argument by saying, “In summary, this is an unprecedented, unconstitutional agency that has more power than Congress and the president put together.”

The CFPB’s legal representatives countered by explaining that the constitution does not give specific instruction on how Congress can or cannot put together the leadership of federal agencies. The senior litigator for the group said, “Congress has made agencies headed by a wide variety of constructions.”

According to some who have attended the proceedings in person, it looks like the judges are open to PHH’s arguments thus far. No final judgment has been given yet, but in a year that has seen the CFPB receive quite a bit of negative publicity and scrutiny from elected officials, this case may very well prove to be the straw that breaks the camel’s back with regard to how much sway the organization manages to hold onto in the future; if, when it is all said and done, the CFPB manages to weather this storm at all.