On the heels of the release of its mammoth prepaid rules, the U.S. Court of Appeals for the District of Columbia Circuit said that the Consumer Financial Protection Bureau’s structure is unconstitutional because it has too much power in one director. The ruling came as part of a case where mortgage lender PHH argues that the Bureau overstepped its bounds in a fine that it levied against PHH.
The U.S. Court of Appeals for the District of Columbia Circuit threw out the bureau’s $109 million penalty against PHH Corp. PHH objected after the CFPB accused the lender in 2014 of referring customers to mortgage insurers who in turn bought reinsurance from one of its units.
Although PHH argued that the Bureau should be shut down, the judge in the case ruled that the agency could continue to operate if the president could remove its director at will. Because this has become a constitutional issue, it is possible that it could be appealed to the Supreme Court. It is hard to say what the effects of the ruling will be on the CFPB’s ability to levy fines, but it does represent one of the first checks on the Bureau’s power.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
