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DC court finds CFPB structure unconstitutional in PHH case

The U.S. Court of Appeals for the District of ColumbiaCircuit on Oct. 11 found the Consumer Financial Protection Bureau's structureto be unconstitutional, but the justices recommended a narrow remedy that wouldnot shutter the agency.

In a 2-1 ruling, the justices found that the CFPB is"unconstitutionally structured" due to being an independent agencyand having a single director instead of a committee leadership structure.However, the justices suggested a remedy that would not disrupt the agency'soperations. The justices stated that the agency should be brought into theexecutive branch, subjecting the CFPB to presidential oversight, similar to theDepartment of Justice or Treasury Department.

"The CFPB's concentration of enormous executive powerin a single, unaccountable, unchecked Director not only departs from settledhistorical practice, but also poses a far greater risk of arbitrary decision-makingand abuse of power, and a far greater threat to individual liberty, than does amulti-member independent agency," justices wrote in the majority opinion.

The ruling came from PHH Corp.'s appeal of a CFPB order to $109 million in reinsurancepremiums, which the regulator classified as illegal kickbacks to a companysubsidiary. The judicial decision agreed with PHH on several counts, vacatingthe CFPB's order and sending the case back to lower courts for a rulingconsistent with the Court of Appeals' decision. PHH made three legal arguments,and the justices agreed with all of them: that the Real Estate SettlementProcedures Act does not bar payments to subsidiaries; that the CFPB violatedPHH's due process by retroactively applying a new interpretation; and that thestatute of limitations had expired.

The dissenting judge agreed with PHH's arguments and statedthat the CFPB had overstepped its bounds in its action. But the judge, KarenHenderson, criticized the other judges for ruling on the CFPB's constitutionalitywhen there were other grounds for the appropriate ruling without answering aconstitutional question.

"[T]hey unnecessarily reach PHH's constitutionalchallenge, thereby rejecting one of the most fundamental tenets of judicial decision-making,"Henderson wrote in dissent.