Yesterday, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued its decision in PHH Corporation v. Consumer Financial Protection Bureau (CFPB). In its decision, the D.C. Circuit struck down the CFPB’s leadership structure as unconstitutionally abridging the separation of powers while also vacating a $109 million judgment against PHH Corporation, a mortgage lender who challenged the CFPB in 2014.
Created by the passage of Dodd-Frank in 2010, the CFPB is an independent executive agency that was given virtually unchecked authority to administer consumer protection statutes and bring enforcement actions against providers of consumer financial products. Funding for the CFPB comes from earnings from the Federal Reserve – entirely outside the congressional appropriations process. Unlike other independent agencies (Securities and Exchange Commission, Commodities Futures Trading Commission, Federal Communications Commission, among others), which are governed by multi-member, bi-partisan commissions, leadership of the CFPB was vested in the hands of a single director, appointed by the President and confirmed by the Senate. After confirmation of the Director, oversight of the CFPB was essentially non-existent.
The CFPB’s leadership structure proved problematic for the D.C. Circuit. Writing for the majority, Judge Kavanaugh wrote, in part:
The 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. … Recognizing the broad and unaccountable power wielded by independent agencies, Congresses and Presidents of both political parties have therefore long endeavored to keep independent agencies in check through other statutory means. In particular, to check independent agencies, Congress has traditionally required multi-member bodies at the helm of every independent agency. In lieu of Presidential control, the multi-member structure of independent agencies acts as a critical substitute check on the excesses of any individual independent agency head – a check that helps to prevent arbitrary decisionmaking and thereby to protect individual liberty.
National Taxpayers Union (NTU) has continuously sounded the alarm bells about the CFPB and its operations. While the D.C. Circuit’s decision struck down the current leadership regime, it does not change the status quo of the CFPB’s operations. Congress needs to continue to exercise oversight over the independent agency and work toward making substantive reforms, including replacing the current leadership structure with a multi-member, bipartisan commission and subjecting the agency to the congressional appropriations process. Nonetheless, the D.C. Circuit’s decision is welcome news for the cause of economic freedom.