Consumer Financial Protection Bureau stays in business

The Consumer Financial Protection Bureau survived a constitutional challenge and will remain in business, though a federal appeals court took away power from its director and tossed out a $109 million penalty against a mortgage company.

The long-awaited decision was a blow to the agency, which was created in the wake of the financial crisis to regulate mortgages, credit cards and other products directed at consumers. Ever since, it’s been the subject of almost constant criticism from Republicans and the industry, even as it scored its highest-profile victory to date, penalizing Wells Fargo & Co. for opening accounts without clients’ knowledge.

The appellate court found the CFPB to be “unconstitutionally structured” because the autonomy vested in Director Richard Cordray — who could only be fired by the president and for cause — was a “gross departure from settled historical practice.”

But the three-judge panel rejected calls to dismantle the agency, instead voiding the for-cause provision and making the director removable by the president at any time and for any reason. “The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice or the Department of the Treasury,” the court ruled.

Moira Vahey, a CFPB spokeswoman, said the agency was considering its options for further review of the ruling, while remaining focused on its mission.

“The Bureau respectfully disagrees with the Court’s decision,” Vahey said in an emailed statement. “The Bureau believes that Congress’s decision to make the director removable only for cause is consistent with Supreme Court precedent.”

The bureau’s options include seeking reconsideration by the full complement of judges on the Washington-based court and petitioning for U.S. Supreme Court review.

Business associations welcomed the ruling, while consumer advocacy groups condemned it.

“The D.C. Circuit’s decision eliminating the CFPB director’s independence threatens the ability of the agency to be a tough protector of consumer interests,” said Public Citizen President Robert Weissman.

Sam Kazman, general counsel of the Competitive Enterprise institute, said, “This is a great day for limited government and the constitutional separation of powers.” The ruling, he added, would “play a major role in providing proper accountability for this rogue agency.”

The court action comes only a month after the CFPB drew praise from Democrats, including presidential candidate Hillary Clinton, for its role in fining Well Fargo $185 million to resolve allegations that bank employees opened deposit and credit-card accounts without customer approval to satisfy sales goals and earn financial rewards. The bank agreed to pay $100 million of that to the CFPB.

Democrats had hailed the enforcement action as a victory for the CFPB and used it to emphasize the need for the agency. They attacked Republican lawmakers who support legislation that would undo the 2010 Dodd-Frank Act and with it, the bureau.

In addition to reducing Cordray’s powers, the appellate court threw out a CFPB decision imposing a $109 million penalty on a New Jersey mortgage-servicing company, PHH Corp.

The agency had punished the company for referring customers to insurers who then purchased reinsurance from a PHH subsidiary. CFPB determined those payments were part of an illegal kickback scheme. PHH said the law creating the CFPB gave an unaccountable director too much authority.

Dico Akseraylian, a spokesman for Mount Laurel, New Jersey-based PHH, said in an e-mail that company officials were “extremely gratified” by the appellate court’s decision.