U.S. appeals court to reconsider challenge to consumer bureau

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By Lawrence Hurley and Lisa Lambert | WASHINGTON

WASHINGTON A U.S. appeals court said on Thursday
it will reconsider an October ruling that the Consumer Financial
Protection Bureau’s structure is unconstitutional, virtually
guaranteeing the battle over an agency borne of the financial
crisis will reach the Supreme Court.

A full panel of 10 judges on the U.S. Court of Appeals for
the District of Columbia Circuit will decide the case after
hearing oral arguments on May 24.

The court’s order indicated that its chief judge, Merrick
Garland, will not participate; leaving six judges appointed by
Democratic presidents and four appointed by Republicans to
decide the case.

A three-judge panel ruled in October that the CFPB vests too
much power in its sole director. It also said the president
should be able to fire the director at will, but stayed the
decision pending appeal.

Republicans have criticized the agency for overreaching, and
have pressed President Donald Trump to fire the current
director, Richard Cordray.

The October decision has now been wiped off the books. Banks
worry that the full-court review will prolong confusion about
the CFPB’s powers, while consumer advocacy groups say it could
shore up the bureau’s independence.

“The court’s decision only creates further uncertainty
regarding the constitutionality of the CFPB,” said Richard Hunt,
head of the Consumer Bankers Association. “Congress and the
administration must move immediately to address this concern.”

The losing side – either the agency created in the 2010
Dodd-Frank Wall Street reform law or the mortgage lender PHH
Corp that sued it – is expected to appeal to the Supreme
Court after the court issues its ruling. The CFPB declined to
comment on the pending litigation.

Given the many Republican attempts to limit or kill the
agency since its inception, Democratic leaders had asked the
appeals court that they be allowed to argue the case on behalf
of CFPB. The court refused.

The agency can represent itself in this review, but the
Justice Department, led by Republican Attorney General Jeff
Sessions, will represent the CFPB if the case goes to the
Supreme Court. It is not clear that the Trump administration
will take the case further if the CFPB loses the next round.

Republicans say the CFPB pushes unnecessary regulation on
small banks and uses large fines to direct lenders’ behavior
without going through proper rule-making processes.

Democrats say that having a sole director allows the CFPB to
avoid political fights and fairly guard consumers against fraud
in mortgages, student loans and other financial products.

The review “throws a wrench in the plans of those clamoring
for a weakened consumer agency,” said Rohit Chopra, senior
fellow at the Consumer Federation of America and formerly
assistant director of the CFPB.


The Republican chairman of the House of Representatives
Financial Services Committee, Jeb Hensarling, is floating the
possibility of using legislation to give the president freedom
to fire the CFPB’s director for any reason.

He and many other Republicans say Trump can already fire
Cordray, because Dodd-Frank allows presidents to remove
directors for cause. They say Cordray has provided cause through
how he has both written and enforced rules. Democrats say the
power to fire the director is intended to be used only in
extreme situations.

The court’s review “has no bearing on the president’s ample
authority to remove CFPB Director Cordray,” Hensarling said in a

Alan Kaplinsky, head of the Consumer Financial Services
Group at law firm Ballard Spahr, though, said the review limits
Trump’s options and makes it harder to fire Cordray for cause.

Republican lawmakers are also working on bills to wipe out
the agency or change its governance to a commission.

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