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CFPB ‘Here to Stay’ After D.C. Appeals Court Ruling

Financial industry leaders, hoping for an end to the Consumer Financial Protection Bureau — or at least the weakening of its regulatory power — through a long-running court case have to wait a while longer.

The U.S. Court of Appeals for the D.C. Circuit on Wednesday ruled that the CFPB’s structure is constitutional, dealing a blow to mortgage lender PHH Corp., which brought the original suit back in 2015.

PHH and a variety of other financial companies have argued that the CFPB, born of the 2010 Dodd-Frank regulatory reform package, violates the Constitution by making its single director relatively difficult to remove. A president must prove that a director acted with “inefficiency, neglect of duty, or malfeasance,” and cannot simply fire the leader at will.

“The [Supreme] Court approved the very means of independence Congress used here: protection of agency leadership from at-will removal by the President,” Circuit Judge Nina Pillard wrote for the 7-3 majority. “The Court has since reaffirmed and built on that precedent, and Congress has embraced it and relied on it in designing independent agencies.”

The ongoing controversy and years-long court case has also touched the reverse mortgage industry, with Ocwen Financial Corporation (NYSE: OCN) last year requesting an early ruling on the case. The company, which services and originates mortgages through its Liberty Home Equity Solutions arm, was hoping to see the bureau’s authority hamstrung amid a CFPB lawsuit alleging improper handling of escrow accounts, mortgage servicing issues, and other improper conduct.

“Ocwen seeks to get this issue resolved early, because it should be relieved of having to defend this unfair action from an unconstitutional agency,” the company said last April.

The case itself isn’t over: The Trump administration and PHH are likely to appeal the case up to the U.S. Supreme Court, according to a report in Bloomberg. The president has already taken steps to shift the bureau’s direction, appointing the historically anti-CFPB Mick Mulvaney as its acting director last fall. Mulvaney has already taken several steps to de-fang the bureau’s powers, requesting more input on its actions from financial companies and putting a freeze on its hiring efforts.

“The Consumer Bureau is constitutional and is here to stay,” Rep. Maxine Waters, a California Democrat and the ranking member of the House Financial Services Committee, said in a statement. “This is an important ruling for America’s consumers and should send a clear warning to predatory actors that despite the unlawful actions of the Trump administration toward the Consumer Bureau, the courts can clearly and correctly interpret congressional intent.”

Her Republican counterpart on the committee, chairman Jeb Hensarling of Texas, slammed the decision in a separate statement.

“I am deeply disappointed with the court’s decision and hope the Supreme Court will review the ruling in short order,” Hensarling said.

“Even though I have total confidence in Acting Director Mulvaney’s vision, the fact remains that no one person in America — especially someone who is unelected — should have the authority to unilaterally control whether working Americans can get a mortgage or a checking account,” he continued.

A three-judge panel ruled in October 2016 that the CFPB’s structure was unconstitutional; Wednesday’s ruling represented an analysis by the full court.

Written by Alex Spanko

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