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In major reversal, U.S. sides with PHH, calls CFPB structure unconstitutional

DOJ asks court to give president authority to fire CFPB director at will

The case of PHH Corporation vs. Consumer Financial Protection Bureau just took a turn that is simultaneously shocking and completely expected at the same time.

Recently, the United States government began to give off indications that it might be switching sides in the landmark battle between the CFPB and PHH, signaling that the Trump administration would not be as supportive of the CFPB as the Obama administration had been.

And Friday, that’s exactly what happened, as the United States government filed an amicus brief in the PHH vs. CFPB case, asking the court to rule the CFPB’s leadership structure unconstitutional and grant President Donald Trump the authority to fire the CFPB director at will.

Under the CFPB’s current structure, the director serves a five-year term and may only be terminated by the president for “inefficiency, neglect of duty, or malfeasance in office.”

The court’s previous ruling in the CFPB-PHH case made the director removable at will, but the CFPB is fighting that ruling, which led the Trump administration to take this unusual, but telegraphed tactic.

The case began with CFPB Director Richard Cordray tacking a $103 million increase onto a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.

PHH fought the fine, arguing that Cordray did not have the authority to increase the fine. The case made its way to the Court of Appeals, which ruled in October that the CFPB’s leadership structure was unconstitutional in a 2-1 vote. The ruling also vacated the additional $100 million fine against PHH.

The CFPB fought the ruling, asking the court to rehear the case en banc, meaning that it wanted the entire court to hear the case, rather than the three judges who ruled on the case in October.

And last month, the full Court of Appeals ruled that it would rehear the case, giving the CFPB the opportunity to defend its constitutionality.

But the government began tipping its hand recently, when a recent filing from the Solicitor General appeared to indicate that the government now supports PHH.

Friday’s filing confirmed that fact.

In the filing, the Department of Justice, arguing on behalf of the U.S., states that the CFPB’s structure is a violation of the separation of powers and should be ruled unconstitutional.

The DOJ’s filing is limited to the issue of whether the CFPB director is removable for cause or not.

“In sum, a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power,” the DOJ argues in the filing.

But the DOJ does not ask for the abolishment of the CFPB, as PHH did in a recent filing.

“The panel correctly concluded that the proper remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional,” the DOJ states.

But the CFPB director should be removable by the president, the DOJ argues.

“In, in our view, the panel correctly applied severability principles and therefore properly struck down only the for-cause removal restrictions,” the DOJ states in reference to the Court of Appeals earlier ruling.

The government’s decision to flip sides has the full support of House Financial Services Committee Chairman Jeb Hensarling, R-TX, who issued the following statement on Friday afternoon:

“Republicans have said for years that the Bureau is unconstitutionally structured.  Its lack of accountability and the unparalleled authority placed in the hands of the Bureau’s unaccountable sole director make the CFPB arguably the most powerful and least accountable bureaucracy in American history.  Owing to its unconstitutional structure, the Bureau’s sole unaccountable director, unlike bipartisan commissions, can act unilaterally to eliminate access to credit options and increase consumer costs.  In addition, the Bureau does not recognize core constitutional principles like the right to due process.  Instead, it relies almost exclusively on its vague or undefined enforcement authority to practice regulation by enforcement.  The Bureau’s consumer protection mission is important, but no government agency – no matter how well-intentioned – should be able to evade common sense checks and balances that are necessary for accountability.  I applaud the Department of Justice for recognizing this unconstitutional CFPB must not stand and must not continue to harm the very consumers it is supposed to protect.”

To read the DOJ’s filing in full, click here.

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