The US Court of Appeals for the DC Circuit declared the structure of the US Consumer Financial Protection Bureau unconstitutional, stating that the “massive, unchecked power” exercised by its director, Richard Cordray, lacks necessary supervision and direction from the President of the United States. It also vacated a $109.2 million penalty against PHH Corp., a home mortgage loan provider, sending it back to the CFPB for further proceedings.

Judge Brett Kavanaugh, writing for the DC Circuit panel, noted that, “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” As a remedy, Kavanaugh focused on giving the President power “to remove the director at will, and to supervise and direct the director.” He stated that this “will not affect the ongoing operations” of the agency.

The case was originally brought against the CFPB by PHH last year, after Cordray issued a decision finding that PHH engaged in a kickback scheme by only referring customers to mortgage insurers that had contracts with Atrium Insurance Co. Atrium was created by PHH in 1994 and provides “reinsurance” to mortgage insurance companies to take on some of the risk. Cordray’s decision required PHH to pay $109.2 million in disgorgement rather than the $6.4 million ordered by an administrative law judge. In overturning the judge’s initial penalty, Cordray argued that PHH committed a separate violation “every time it accepted a reinsurance payment from a mortgage issuer.” PHH appealed the decision, challenging not only the legal foundation of Cordray’s decision but also the constitutionality of the CFPB.

The CFPB has been criticized for its broad authority granted as part of the Dodd-Frank Act’s financial reform package, and particularly for the power vested in a single individual at the head of the agency. The Obama administration has defended the structure of the CFPB and the limits on the President’s ability to remove the agency head.

View opinion.