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Federal Appeals Court Calls CFPB Unconstitutional

The Consumer Financial Protection Bureau was handed a blow when a federal appeals court panel ruled the structure of the government agency created in the wake of the financial crisis, is unconstitutional.  

According to a report in the Wall Street Journal, the decision from the three  judge panel of the U.S. Court of Appeals for the District of Columbia Circuit today (Oct. 11) said the CFPB violated the Constitution’s separation of powers because the director of the CFPB isn’t “sufficiently answerable to the president.”

The federal appeals court dismissed the idea the CFPB should be closed down but did say the president should be given the power to remove the CFPB’s director at will and to supervise and direct the head of the CFPB.  The Wall Street Journal noted that if the change were to happen it could make the CFPB more of a political government agency because the White House would be able to control more of the direction it heads in. The next president, which will be decided in a mere month, would also have the power and authority to remove the current director Richard Cordray before his term expires.  “In light of the consistent historical practice under which independent agencies have been headed by multiple commissioners or board members, and in light of the threat to individual liberty posed by a single-Director independent agency….We therefore hold that the CFPB is unconstitutionally structured,” the court said.

The report noted that in addition to calling the structure of the CFPB unconstitutional, the appeals court panel also said the agency made legal mistakes in its enforcement action against PHH Corp. a mortgage lender. Some of those include the CFPB adopting a new interpretation of a real estate industry law and wrongly applying the interpretation retroactively to a business behavior that happened before the new rule took place.

 

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