On October 11, 2016, the United States Court of Appeals for the District of Columbia Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) structure is unconstitutional. PHH Corporation v. Consumer Financial Protection Bureau, No. 15-1177, 2016 WL 5898801 (D.C. Cir. Oct. 11, 2016).
Unlike most independent agencies, which contain multi-member structures to check against arbitrary decision-making and abuse of power, the CFPB is an independent agency lead by a single Director subject only to for-cause removal by the President of the United States under the Dodd-Frank Act. The Court of Appeals observed that this structure “represents a gross departure from settled historical practice,” noting the CFPB’s Director wields “enormous power over American business, American consumers, and the overall U.S. economy.” The court concluded that the CFPB’s structure “poses a greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” Given the CFPB’s unchecked structure, “other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.”
Based on these concerns, the court held that the CFPB’s structure is unconstitutional. As a remedy, the court severed the for-cause removal provision in the Dodd-Frank Act, directing that: “As a result, the CFPB now will operate as an executive agency. The President of the United States now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”
The opinion is also notable because the court rejected the CFPB’s attempt to retroactively apply its interpretation of the underlying statute as part of the agency’s attempt to sanction conduct that was permissible at the time it was taken. The court concluded that, while changing an interpretation is not problematic standing alone, doing so “becomes a problem ‒ a fatal one ‒ when the Government decides to turn around and retroactively apply that new interpretation to proscribe conduct that occurred before the new interpretation was issued.”
Those regulated by the CFPB will continue to monitor the agency’s agenda and enforcement actions in the coming months to assess the true impact, if any, this decision has on the CFPB.
LeClairRyan represents financial services providers and regularly defends clients in class action and individual claims throughout the United States in matters regarding consumer financial services.