Enforcement actions ordered under that authority, carried out by CFPB Director Richard Cordray, have drawn praise from consumers and their advocates.
In the ruling, Judge Brett Kavanaugh for the U.S. Court of Appeals for the District of Columbia Circuit said that "unlike other independent agencies not accountable to the president whose leaders are instead checked by commissions, the CFPB had a "novel" structure in which a single person headed it", according to a Reuters report. Title X, the section of the Act which calls for Bureau's formation, states that a director will be appointed by the President and confirmed by the Senate. Specifically, the appellate court took issue with the CFPB's single director, Richard Cordray, who can only be removed by the president for cause. Since its authorization in the 2010 Dodd-Frank Act, the CFPB has been subject to nearly constant criticism from Republicans and the financial industry over its efforts to reign in lending practices. But in others, the setup of the CFPB is similar to that of the Federal Reserve.
Others used the legal ruling to push the CFPB to significantly rein in its operations.
Banks, mortgage lenders, and other credit establishments have largely cowered before Cordray and his troops, agreeing to nine-figure settlements rather than engage in prolonged litigation.
HousingWire also contacted PHH for comment on this landmark decision, and this article will be updated if PHH responds to requests for comment. The ruling also vacated a $109 million enforcement action against PHH, sending the case back to the CFPB for review. In return, the mortgage insurer buys reinsurance from a mortgage reinsurer affiliated with (or owned by) the referring mortgage lender.
The Court ruled in favor of PHH, saying that so long as the reinsurance from the subsidiary did not exceed the reasonable market value of reinsurance that RESPA was not violated. However, the CFPB, one day, chose to reinterpret Section 8-the better to hand out hefty fines to companies such as PHH Corp.
"PHH argues that the CFPB violated bedrock due process principles by retroactively applying its new interpretation of the statute against PHH", the court writes.
The ruling is a bit of a constitutional bank shot, because there is nothing in the Constitution specifically preventing a government agency from having the sort of structure the Dodd-Frank Act gave the CFPB. He called the bureau's punishment of PHH "draconian", remedial and unauthorized.
Sam Kazman, general counsel of the Competitive Enterprise institute, said, "This is a great day for limited government and the constitutional separation of powers".
The CFPB is the creation of progressive darling U.S. Sen. The Framers understood that threat to individual liberty. That's not the case with the CFPB.
The appeals court said the CFPB's position was absurd and would have allowed the bureau unlimited time to bring administrative cases under all 19 of the consumer-protection laws the agency enforces. "The CFPB therefore will continue to operate and to perform its many duties, but will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice or the Department of the Treasury", the court ruled. In particular, to check independent agencies, Congress has traditionally required multi-member bodies at the helm of every independent agency.
Under Supreme Court precedent, Congress may create independent agencies-agencies that allow removal of the director only for cause-that can exercise executive power, Kavanaugh wrote. The ruling, he added, would "play a major role in providing proper accountability for this rogue agency".