Defending Its Life: What To Expect From The CFPB’s Trip To The D.C. Appellate Court

There are no shortage of divisive topics in Washington D.C. these days; it would, in fact, be quicker and easier to make a list of topics that enjoy bipartisan agreement than to try and catalog all the individual differences. Judges, budgets, healthcare, regulation, the environment — pick a subject, find a bitter divide.

But in a world of divided politics and sometimes rancorous disagreement, the Consumer Finance Protection Bureau (CFPB) is truly in a class by itself.

Those who love the CFPB — and there are many who sincerely do — truly believe it is the thin red line that stands between consumers and the most ludicrous abuses by large, powerful and entrenched interests at banks. Their favorite example is Wells Fargo and the two million fake accounts its employees created at the feet of an “anything to win” corporate culture that punished those who would not break the law.

Those who hate the CFPB — and there are many who sincerely do — truly believe it is an unaccountable, unnecessary and arbitrary regulatory federal body that is much more interested in sticking its nose in the business of state regulators, adding an additional level of federal oversight where multiple federal layers of oversight already exist and punishing big banks because they can, knowing they don’t fight back. Their favorite example is millions of underserved Americans who have been “protected” from any meaningful access to credit because of CFPB regulation that makes it risky for banks to lend to anyone without perfect credit and lots of assets.

But for all the disagreement about the CFPB, there is one point of complete agreement among its supporters and detractors: What will become of the organization, and its unprecedented ability to set policy, is very much up in the air.

These days, the CFPB has a few powerful enemies — and old enemies with new power. President Donald Trump and the Republican leadership in Congress have made little secret of the fact that they would like to see CFPB Director Richard Cordray removed, the scale of the Bureau’s authority reduced, its governance structure totally changed and its enabling legislation (Dodd-Frank) rolled back or repealed entirely.

However, the CFPB is difficult to undo by executive fiat or congressional action. Its funding is independent of congressional allocation. And its director serves a six-year term and can only be removed “for cause,” unlike the directors of other executive branch departments who serve at the will of the president. There are attempts underway to put together a case to fire Richard Cordray for cause, but most experts believe that it will be an ugly fight.

And an ugly fight that may not end up being necessary — as it turns out, the CFPB’s unique structure may prove to be the undoing of the organization as we currently know it.

The Court Battle — And the CFPB’s Preferred “Bad” Outcome

In October, a panel of the U.S. Court of Appeals for the District of Columbia Circuit said the Bureau’s leadership structure violates the Constitution. Specifically, the court found that the Bureau’s single executive director — as the independent head of an independent regulatory bureau — has more unilateral power than anyone in D.C. (with the exception of the President), which is a lot more than it can have under the structure of the United States Constitution.

The court noted that while the U.S. government does contain independent agencies, like the Federal Trade Commission, that the President doesn’t have direct oversight over, those agencies have several commissioners, drawn from both parties, who provide checks and balances on each other.

Thus the court ruled the CFPB could do one of two things: make their single director serve with executive branch oversight, i.e. at the will of the President, or replace the single director with a bipartisan commission.

The CFPB, unsurprisingly, does not agree with that ruling and is appealing it now to the full Washington, D.C. Appellate Court. In a brief filed at the end of last week — in advance of oral arguments set to commence next month — the CFPB defended the basic constitutionality of its structure as far less exotic than its opponents have made it out to be.

“Here, the Bureau’s structure does not interfere with the President’s power to take care that the law be faithfully executed, nor does it interfere with any other branch’s ability to perform its constitutionally assigned functions,” the CFPB said. “So the Bureau’s structure does not infringe the Constitution’s separation of powers, provisions or the individual liberty that those provisions are designed to secure.”

That defense has been the CFPB’s standard line since the three-judge panel ruling first came out in October.

However, in the latest brief, the CFPB also tipped its hand for its preferred outcome, should the court decide that restructuring is in order (i.e. should they lose).

They’d rather keep the single director.

“If this Court determines that the Bureau’s structure is unconstitutional, it should sever the ‘for cause’ removal provision,” the CFPB said.

Such a decision would preserve the bureau’s single-director structure but allow for that director to be removed at will by the President.

What’s Next

Oral arguments are set to begin on May 24th. Until then, expect more of the bitter divisions that have typified the discussion so far. Last Friday (March 31) was the last day for amicus briefs for both sides of the case. Scores of pro-CFPB amicus briefs poured in from consumer advocacy groups and democratic legislators, and scores of anti-CFPB briefs poured in from Republican legislators (including the White House) and banking advocates.

And the Department of Justice (DOJ), which in legal matters brought against government agencies, almost always sides with the government agency. Not this administration’s DOJ, however.

As for which way the court will go?  That’s a $605.9 million question, and, as of yet, no one has an answer.

We’ll keep you posted as the story unfolds — and when opening arguments begin.

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