WASHINGTON – A federal appeals court has ruled that the structure of a U.S. consumer watchdog agency is unconstitutional because it gives too much power to a single agency director.
The ruling issued Tuesday said the way the Consumer Financial Protection Bureau is organized violates the Constitution’s separation of powers because it limits the president’s ability to remove the director who heads the agency.
The law creating the independent agency after the 2008-09 financial crisis says its director can only be removed “for cause,” such as neglect of duty, and not over political differences. The court said that conflicts with the Constitution, which allows the president to remove executives for any reason.
The ruling came from a three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit.
The ruling handed a victory to the banking industry, which has viewed the agency as a thorn in its side and accused it of overreaching in its regulation of consumer financial activities. The agency has taken legal action against banks, mortgage companies, credit card issuers, payday lenders, debt collectors and others. The CFPB says that over five years it has recovered $11.7 billion that it returned to more than 27 million harmed consumers.
The agency has been enmeshed in partisan politics since it was created by Congress in a major financial overhaul law in 2010 to protect consumers from harmful banking and lending practices. Wall Street interests, the banking and consumer finance industries and Republicans in Congress have fiercely opposed and criticized the agency.
The idea for the agency was conceived by Elizabeth Warren, now a Democratic senator from Massachusetts and a fiery critic of Wall Street. President Barack Obama had considered naming her to head the CFPB, but her nomination likely would have run into deep opposition from the Republicans in Congress. Richard Cordray, a former Ohio attorney general, has run the agency since it began operating in 2011.
In the legal case, the government has argued that the agency’s structure and powers are constitutional.
The case involves allegations that New Jersey mortgage lender PHH Corp. was involved in a scheme to refer customers to certain mortgage insurance companies in exchange for illegal kickbacks. The CFPB ordered PHH to pay $109 million in illegal payments it had received. PHH claims its conduct was legal and challenged the bureau’s structure as unconstitutional.
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