Appeals Court Ruling That CFPB’s Structure Is Unconstitutional: A Stealth Win?

Jerri-Lynn Scofield, who was one of Lawrence Tribe’s research assistants, will be giving a hard look at DC Court of Appeals’ ruling in PHH Corporation v. Consumer Financial Protection Bureau, which found the agency’s structure to be unconstitutional. If you believe the headlines, was a big defeat for the agency (see, for instance, the Wall Street Journal:
Appeals Court Deals Setback to Consumer-Watchdog Agency). But that appears to be a superficial reading.

The CFPB lost on the immediate issue of calling for a $109 million disgorgement for CFPB charges based on the agency’s interpretation of what constitutes a kickback under RESPA. However, Georgetown law professor Adam Levitin believes the ruling, written in a blistering tone by conservative judge Brett Kavanaugh, is actually a win for the CFPB by putting a lot of potential threats to bed. My big concern when first learning of the ruling was whether it would subject the CFPB to Congressional budgetary approval, which is the mechanism by which the SEC was turned from a respected and feared agency in the 1970s to the corporate crony it is now. That didn’t happen. From Levitin’s post:

  • First, the CFPB’s existing rule makings and enforcement actions remain valid and unaffected.  That’s a huge win for the CFPB.  It’s business as usual at the CFPB for all intents and purposes.
  • Second, the CFPB’s Director is now under direct Presidential political control, but that doesn’t have partisan implications:  a GOP-appointed director could be removed as easily by a Democratic president as a Democratic-appointed director could be removed by a Republican president. Now the CFPB Director, instead of running on a five-year term will be on a five-year term that might get curtailed with every change in Presidential administration. That’s not a particularly big deal.
  • Third, the CFPB remains budgetarily independent.  The importance of this cannot be over-emphasized.  It means that if anyone wants to affect the CFPB’s ability to function it has to be done out in the open. The agency cannot be quietly asphyxiated through the appropriations process as has happened with the SEC and FTC.
  • And finally, the decision takes the wind out of sails of House GOP efforts to gut the CFPB by turning it into an ineffective commission structure and subjecting its budget to appropriations.  The House GOP has been attacking the CFPB as relentlessly as it has attacked Obamacare, and the DC Circuit just took away their leading argument, namely that the CFPB has to be removed wholesale because its structure is unconstitutional.  Not so said the court.  There was a very targeted surgical fix, and now the agency’s structure is kosher. Combine that with the Wells Fargo fake account scandal, which underscored the need for a strong CFPB, and the House GOP’s attacks on the CFPB are standing on increasingly shaky ground.

Levitin also believes that another part of the ruling where corporate interests might have thought they scored a win, statute of limitations applies to a CFPB administrative adjudication, may actually come back to bite them. Levitin adds that the CFPB could appeal, and thinks seeking a full-panel review by the DC Court of Appeals would be the smarter route to go, since three judges the CFPB got on this case were particularly conservative (and on top of that, as Alison Frankel points out, one judge gave a partial dissent, arguing that the court could have decided the case without considering any constitutional issues). So the CFPB emerged from a major challenge largely unscathed, and in some key ways, ahead.

Print Friendly, PDF & Email


  1. The Beeman

    As a participant in FinServ, I am particularly unimpressed with the actions of the CPPB w/r/t Wells.

    All those accounts, all those whistleblowers….weak response at best.

    Who made the decision to keep this quiet and not call the Justice Department until after the public announcements of fines and settlements was made ?

    1. perpetualWAR

      I am unimpressed with the CFPB also. Try to send in a complaint, they allow the alleged creditor to respond, then it’s end of story.

      They might as well be called Consumer Database of Alleged Issues, CDAI.

  2. allan

    IANAL, but how on earth do judges tell the CFPB how to restructure?
    It would be one thing to say the CFPB Director’s position is unconstitutional,
    and then send it back to Congress for redrafting,
    but ordering a specific new structure seems way out of line.
    Once upon a time, Bush-Cheney dead-enders like Kavanaugh claimed to be against judicial overreach.

    1. Vatch

      Bush-Cheney dead-enders like Kavanaugh claimed to be against judicial overreach.

      Yes, it’s funny how that works out. Apparently judicial activism is only bad when practiced by left wing progressive judges. Hmmmm.

  3. Science Officer Smirnoff

    Thanks, Yves.
    The rest of us note Levitan adds—

    The smart move for the CFPB would seem to be to seek en banc review, in that the particular three-judge panel in this case was an unusually conservative panel that is not representative of the DC Circuit overall. The reason not to go directly to the Supreme Court is that if the court splits 4-4, then the lower court ruling stands. Accordingly, it seems better to try and get a favorable ruling en banc from the DC Circuit that could then be reviewed by the Supreme Court than have an unfavorable DC Circuit panel ruling reviewed by the Supreme Court.

    1. Science Officer Smirnoff

      Site software fails! I deleted (this redundant comment) and got a return message that said it was deleted. It was for a while it seems.

      OK, make that “Levitin” if we leave this ugly thing out in the sun.

    2. Yves Smith Post author

      Um, did you miss that I said:

      Levitin… thinks seeking a full-panel review by the DC Court of Appeals would be the smarter route to go, since three judges the CFPB got on this case were particularly conservative

  4. Science Officer Smirnoff

    Thanks, Yves.

    Another en blanc review in the offing one hopes (am including 9th Circuit in counting recent rulings. . . )

  5. weinerdog43

    Letvin is absolutely correct. Judges say mean things to lawyers all the time, but if the ruling is OK, then you just cry all the way to the bank. The CFPB dodged the death penalty ruling and instead got a slap on the pinky. Even the statute of limitations part is no big deal. Once you know your deadline, you just work accordingly. Finally, the funding thing is huge.

    Good analysis by Mr. Letvin.

  6. Skippy

    I don’t know… whilst the day of judgment has been put off…. I get a strange feeling that the kittens have been shown the bag and the bridge….

    Disheveled Marsupial…. so much is tied up in the preznit election and which way the wind blows… job security is a huge incentive… alas… anywho thanks Prof Levitin

Comments are closed.