DOJ Finds CFPB Structure Unconstitutional, Sides With Trump

  • William Hoffman
  • March 20, 2017

Judge LegalThe Department of Justice is backing a proposal that would allow President Donald Trump to replace Consumer Financial Protection Bureau Director Richard Cordray, according to court documents filed Friday.

The filing was a departure from what the DOJ supported during the waning days of President Barack Obama’s administration, and unusually pits two executive agencies against one another.

Cordray was appointed by President Obama during the creation of the CFPB under the Dodd Frank Act, and can only be removed “for cause” — meaning Cordray would have to violate a rule or law to be replaced before his term is up in 2018.

A three-judge court in the fall ruled that the structure is unconstitutional and that the president should have the authority to remove the CFPB director at will. In the final days of the Obama administration, the DOJ issued a friend-of-the-court brief in support of the CFPB, asking that the court rehear the case with a full panel of judges. However, that friend-of-the-court brief did not go so far as to argue for the constitutionality of the CFPB’s current structure.

Friday’s amicus brief marks a reversal of the DOJ’s previous stance but does not fully support the position taken by PHH Corp., the mortgage lender suing the CFPB over enforcements actions taken against the company.

PHH argues that the CFPB should be abolished entirely, because to take the more mild action of allowing the president to fire the director at will would turn the agency “into an entity that Congress never intended,” according to a brief issued by the company earlier this month.

The Justice Department disagreed with that argument in its Friday filing, and supported the more reserved position that the president should be allowed to replace the director at will.

“There is no evidence that Congress would have preferred no bureau at all to a bureau whose director was removable at will,” Justice Department lawyers wrote in the brief.  

The CFPB can represent itself in the D.C. Circuit Court — which begins hearings in May — but if the case is escalated to the Supreme Court, the Justice Department is typically supposed to represent the newly-formed agency.

Now, the CFPB would need to seek another group to join the case on its behalf if it were to escalate to the high court, said Michael Landis, litigation director for the consumer advocacy group U.S. Public Interest Research Group, talking to The Washington Post.

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