Consumer Watchdog Poised To Survive DC Circuit

REUTERS/Larry Downing

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Kevin Daley Supreme Court correspondent
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The U.S. Court of Appeals for the D.C. Circuit seemed poised Wednesday to side with the Consumer Financial Protection Bureau (CFPB), a regulatory agency championed by Sen. Elizabeth Warren and former President Barack Obama, in a dispute over the constitutionality of the agency’s leadership structure.

A three judge panel of the D.C. Circuit ruled in October 2015 that the CFPB’s leadership framework is unconstitutional, because its director may only be dismissed by the president for cause. Critics argue insulating the director from dismissal at the president’s pleasure compromises the president’s exclusive authority to supervise and direct executive branch agencies. They also say the agency itself wield too much power.

The full D.C. Circuit elected to hear the case en banc, a procedure in which all active judges on the court reviewed the 2015 ruling. Democratic appointees enjoyed a 6-4 advantage on the 10 judge panel. Chief Judge Merrick Garland did not participate in the case.

A New Jersey-based mortgage lender called PHH Mortgage first brought a challenge to the CFPB after the agency assessed a $109 million penalty against the company for an alleged scheme to refer its customers to a mortgage insurer in exchange for kickbacks. In addition to its constitutional arguments, the company argues the agency cannot ban lenders from requiring customers to buy insurance from particular companies.

The company is represented by former Solicitor General Ted Olson of Gibson Dunn & Crutcher while the agency was represented by Lawrence DeMille-Wagman. The U.S. Department of Justice backed PHH during Wednesday’s arguments.

Democratic appointees on the panel grilled Olson during Wednesday’s hearing, arguing a single-director structure enhances, not diminishes, the power of the president. Judge Patricia Millett, a Barack Obama appointee, suggested that most financial regulatory agencies are led by multi-member commissions with members appointed by members of each party. In the CFPB’s case, Millett argued, the president can reorient the direction of the agency with a single appointment. Judge Thomas Griffith, a George W. Bush appointee, appeared to endorse this view.

Judge Janice Rogers Brown, a Bush appointee, countered that a federal commissioner has never been removed for cause, demonstrating that the president’s power over the agency was less substantial than others on the panel asserted.

Olson also argued the leadership structure was problematic as it empowered one individual — the agency’s director — to interpret and execute the laws the agency enforces. Judge Nina Pillard, an Obama appointee, told Olson the structure solidifies Congress’ legitimate interest in protecting the agency from cronyism.

Regardless of outcome, the case will almost certainly be appealed to the Supreme Court.

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