Federal Court Rules CFPB Structure Unconstitutional

Chris Gaetano
Published Date:
Oct 12, 2016

A federal court has ruled that the Consumer Financial Protection Bureau (CFPB), a federal agency that formed in the wake of the 2008 financial crisis, is unconstitutional in its current form, according to The Wall Street Journal.  The U.S. Court of Appeals for the District of Columbia Circuit, hearing a case regarding a mortgage lender that was targeted by the CFPB for allegedly accepting kickbacks from mortgage insurers, said that the agency violates separation of powers because the president can only remove the director for cause. This issue would be fixed, according to the court, if the structure changed to allow its leader to be removed by the president at will, as well as accept more oversight and supervision from the president. It did not say that the agency itself was unconstitutional, and said that it can continue to perform its many duties so long as it operated as other executive agencies, like the Department of Justice or the Department of Treasury. 

The CFPB, which was created as part of the Dodd-Frank Act, is responsible for consumer protections in the financial sector, and has regulatory power over institutions like banks, credit unions, payday lenders and debt collectors. Congressional Republicans had opposed the creation of this new agency, which was originally supposed to be headed by now-Senator Elizabeth Warren (D - Massachusetts) before current director James Cordray was accepted as a compromise. Opponents also critiqued the agency's structure, saying that it shouldn't be headed by a single director but a commission, similar to the Securities and Exchange Commission.

CNN Money said that the CFPB disagrees with the court's decision and is seeking ways to challenge the ruling. 

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