CFPB wins a round in court -- threat to consumer bureau's director, structural changes on hold for now

The Consumer Financial Protection Bureau won a significant legal victory Thursday when an appeals court agreed to re-hear the case that threatened to fundamentally change the agency's structure and imperiled its leader, Richard Cordray.

A Washington D.C. circuit court of appeals ruled last fall that the bureau's structure was unconstitutional. It found that too much "unilateral power" was granted to its director -- in part because the law that created the bureau made it hard for a president to remove the bureau's leader, who serves a five-year term that's intentionally out of sync with political elections. The financial reform bill which created the CFPB included provisions that its director could only be removed "for cause," defined in the legislation as due to ”negligence, inefficiency (or) malfeasance,” in an attempt to insulate the agency from politics. The court's ruling meant the president could remove the director for any reason.

The CFPB immediately appealed; on Thursday, the D.C. appeals court granted the bureau's request that the panel decision be reconsidered "en banc," or by the full court. The hearing is set for May 24. The panel decision will be set aside until then. That makes it likely that Cordray will keep his job until at least then -- but that is not guaranteed.

The appeals court had ruled that Cordray could be fired for any reason, opening the door for President Donald Trump to appoint a replacement. Trump's team actually announced they had interviewed a replacement during the transition period -- former Texas Republican Congressman Randy Neugebauer, a frequent CFPB critic. The panel ruling also helped open the door to replace the single-director structure of the agency with a commission, similar to how the Federal Trade Commission operates.

But on Thursday, that same D.C. court agreed to re-hear the case with Chief Judge Merrick B. Garland added back to the bench. Garland had recused himself while he was President Barack Obama's nominee to the U.S. Supreme Court.

"We are pleased that the ruling against the Consumer Financial Protection Bureau’s independent leadership will be reviewed by the full court," said Mike Landis, Litigation Director, at advocacy group U.S. PIRG. "A review by the full court gives Director Richard Cordray the chance to finish out his term and continue being a consumer champion. "

It's not out of the question that the Trump administration could try to replace Cordray anyway, as some speculated around the time that Trump took office. But that seems unlikely. While the bureau's legal status right now maintains Congress' provision that the director can only be fired "for cause," that's never actually been done, according to the American Constitutional Society for Law and Policy.

Even as the bureau is facing this legal challenge, it has continued its enforcement actions apace. In the past month, the bureau has sued Navient, the student loan servicer formerly knows as Sallie Mae, and it took action against a debt relief company; a mortgage company; and a pre-paid debit card company.

“The full court has now vacated the three-judge panel’s highly questionable decision that the President has unlimited authority to fire Cordray for any reason – including doing his job too well by standing up for ordinary Americans over big banks and predatory lenders," said National Consumer Law Center Associate Director Lauren Saunders. "If President Trump were now to accede to the Wall Street campaign demanding Richard Cordray’s head, the firing would unquestionably violate the law. The Wall Street Reform Act deliberately gave the consumer watchdog independence from lobbyists and political interests so that it could do its job to protect the public’s interest. The CFPB has been a powerful ally for consumers – including many Trump voters, older adults, and military personnel– in its short existence, delivering nearly $12 billion to 29 million consumers around the country. Critics attempting to build a case for the unprecedented removal of Richard Cordray as CFPB director are on thin legal ground, lack public support, and are carrying water for powerful special interests.”

For more on the intrigue surrounding the CFPB, see my story from last month.

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