Consumer Financial Protection Bureau wins rehearing on court ruling, in setback to GOP

An appeals court on Thursday set aside a ruling that found the CFPB unconstitutional, handing a lifeline to the agency as Republicans push to weaken its powers.

The U.S. Court of Appeals in Washington granted the bureau’s request to rehear the case, in which a three-judge panel of the same court granted the White House authority to remove the CFPB’s independent director, Richard Cordray, for any reason.


That ruling, in October, exposed the bureau to a hostile, Republican-led Congress and White House looking to dismantle the crisis-era, landmark law that created the bureau.

Thursday’s court order gives Cordray job security, political breathing room and another chance to defend the independent agency, which was established by the Dodd-Frank Act and set up by Elizabeth Warren, now a Massachusetts senator, in the wake of the financial collapse.

Since the election, the bureau has been pounded by Republicans pushing to restructure its leadership and funding. President Donald Trump has promised to do “a big number” on Dodd-Frank and is facing pressure to fire Cordray for cause instead of waiting for legislative reforms.

“For months, congressional Republicans have been attacking the CFPB, hiding behind a flawed court decision," Warren said. "Now they have to stop pretending their attacks on Director Cordray and the agency are about anything other than carrying water for big banks, payday lenders, and debt collectors.”

Republican Jeb Hensarling, chairman of House Financial Services, said the court case won’t affect his plans to pass a bill to restructure the bureau.

"The court's decision to grant another hearing, while not unexpected, has no bearing on the president's ample authority to remove CFPB Director Cordray from office," Hensarling said. "I encourage President Trump to take immediate action to uphold the Constitution by reining in this unconstitutional and out-of-control agency.”

A CFPB spokesman declined comment. The appeals court scheduled oral arguments in the case for May 24.

"The court's decision only creates further uncertainty," said Richard Hunt, president of the Consumer Bankers Association. "Congress and the administration must move immediately to address this concern on behalf of consumers."

Congress gave the CFPB director unilateral authority to set fines and enforce a broad range of laws governing mortgages, credit cards, student loans and other consumer financial products. The agency says it has returned nearly $12 billion to consumers since its creation.

The bureau’s director can be fired by the president only for “inefficiency, neglect of duty, or malfeasance.” Hensarling and others say Trump has the legal ability to dismiss Cordray for those reasons if the president chooses. Cordray’s term expires in July 2018.

But politically, the court order makes it harder for Trump to fire Cordray, given the bureau’s popularity with the public, said Lauren Saunders, associate director of the National Consumer Law Center.

"It does change the political dynamic. President Trump did not campaign on going after the CFPB," Saunders said. "This is not like immigration, which was a centerpiece of his campaign."

"The game is up on firing Cordray," Saunders said. "Yes, there will be a new director later next year, and that will change the tenor of the agency. But there’s a lot of important work between here and there."

Thursday’s court order stems from a CFPB fine against mortgage company PHH Corp. in 2014. CFPB had targeted the company for referring customers to insurers who then purchased reinsurance from a PHH subsidiary.

The PHH practice wasn’t new and had been deemed legal by the Department of Housing and Urban Development. But the CFPB likened the referrals to kickbacks and fined PHH $109 million for transactions dating back nearly two decades. PHH sued, saying the bureau’s interpretation had been applied retroactively.

“We are confident that we will prevail before the full D.C. Circuit for PHH, which was subjected to a fundamentally unfair order promulgated by an unconstitutionally structured agency," Helgi Walker, a partner at Gibson, Dunn & Crutcher and a lawyer for the company, said after today's decision.

The appeals court isn’t likely to decide the case before the end of this summer, lawyers said. And an appeal by either side to the Supreme Court could push a final outcome of the case into mid-2018.

The court ruling, while a reprieve for the bureau, doesn’t change the inevitable outcome, said Charles Gabriel, an analyst at Capital Alpha Partners. Even if Republicans can’t pass legislation to revamp the CFPB, Cordray will be replaced next year.

“We’re on a path heading down the river,” Gabriel said. “The only question is how quickly we get there.”

The case is PHH Corp. v. CFPB.

Zachary Warmbrodt contributed to this report.

