September 18, 2019

CFPB says structure is 'unconstitutional'

gavelAfter years of lawsuits challenging the CFPB's single-director structure and calls from various stakeholders – including NAFCU – to change its governance to a bipartisan commission, the Trump administration has determined that the bureau's current structure is unconstitutional.

As a result, CFPB Director Kathy Kraninger notified congressional leaders Tuesday that the bureau will no longer defend its structure.

NAFCU is supportive of legislation to reform the bureau's governance structure to a bipartisan commission, as well as other reforms pursued by Congress.

In a brief to the U.S. Supreme Court, the administration indicated that language in the Dodd-Frank Act saying that the president can only remove a director for "inefficiency, neglect of duty, or malfeasance in office" violates the Constitution.

The Supreme Court is considering whether to take up the appeal filed against the bureau by Seila Law. The U.S. Court of Appeals for the Ninth Circuit in May ruled that the single-director structure was constitutional, citing a decision last year from the U.S. Court of Appeals for the D.C. Circuit sitting en banc, which upheld the bureau's constitutionality in another case brought by PHH Corp.

Although PHH Corp. declined to appeal the D.C. Circuit's ruling, there continues to be other challenges: The Fifth Circuit Court of Appeals heard oral arguments in April for a challenge to the bureau's constitutionality brought by defendants accused by the bureau in 2016 of engaging in unfair payday lending conduct; in March, the CFPB defended its structure before the U.S. Court of Appeals for the Second Circuit, arguing that Supreme Court precedent reinforces its constitutionality, and also that its structure "does not impede the president's ability to perform his constitutional duties."

However, earlier this year, the Supreme Court declined to hear a lawsuit challenging the bureau's structure.

Also of note, the Fifth Circuit, sitting en banc, recently ruled that the Federal Housing Finance Agency's (FHFA) structure, which is also single director, is unconstitutional. The FHFA had also decided not to defend its structure in that case.