By: Kristian N. Smith
After more than five years of heavy regulation and enforcement targeting financial institutions and the automotive industry, the Consumer Financial Protection Bureau (CFPB) faces a new hurdle. In a recent decision, the D.C. Circuit Court of Appeals ruled that the structure of the CFPB is unconstitutional.
The court emphasized the lack of oversight over the CFPB’s judgments and the “unilateral power” given to the agency’s director, explaining that, other than the President, the Director is the “single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.”
The CFPB — created in the wake of the financial crisis by the Dodd-Frank Act as a consumer watchdog — has the ability to “administer, enforce, and otherwise implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance.”
Although the Director is appointed by the President and confirmed by the Senate, neither the Director nor the CFPB are subject to direct oversight from any of the branches of government, and the Director can only be removed for cause.
The D.C. Circuit’s ruling changes this structure. Now, the CFPB will be given presidential oversight, with the sitting president able to supervise, fire, and direct the head of the CFPB.
Many groups who have been against the CFPB’s existence since its creation welcome this ruling, including those in the financial industry. Other groups, including those involved with financial reform and consumer banking, have denounced the ruling, calling it a loss for consumers, the very group the CFPB was created to protect.
To date, the CFPB has realized more than $11.7 billion in “relief,” meaning penalties and other items such as forgiven debt balances, passing the benefits on to more than 27 million consumers. The ruling could, however, weaken the CFPB’s effectiveness and its ability to pursue certain cases and retroactively apply new rules.
The ruling could also have wider-reaching implications. For example, other agencies whose structures are similar to the CFPB’s — including the Office of the Comptroller of the Currency and the Federal Housing Finance Agency — could face similar changes to their power and authority.
The D.C Circuit’s decision will not likely go unchallenged. A CFPB spokeswoman said that the agency is “considering options for seeking further review of the Court’s decision.” In addition, we will likely see litigation over whether the CFPB’s past rulings, which, according to the D.C. Circuit, took place under an unconstitutional structure, will remain binding.