Constitutional Law

Is consumer bureau an unconstitutional 'super executive agency'? DC Circuit panel seems to think so

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Ted Olson told the U.S. Court of Appeals for the D.C. Circuit on Tuesday that the Consumer Financial Protection Bureau is an unconstitutional “super executive agency” that violates the separation of powers.

The two judges hearing the oral arguments appeared receptive to the argument, report the National Law Journal (sub. req.), the Wall Street Journal (sub. req.) and the Huffington Post. A third judge on the panel was absent during the arguments.

The president can’t fire the leader of the CFPB except in specified circumstances, and the agency gets its funding from the Federal Reserve rather than congressional appropriations. The lack of accountability is a problem, according to Olson. “The president and the Congress have no power over this agency,” he said.

The oral arguments led the National Law Journal to conclude that “the question appeared to be not whether the judges would alter the bureau’s structure, but rather how much.” The D.C. Circuit panel could find the entire CFPB structure unconstitutional, or it could strike down specific provisions of the law governing the structure, such as the provision on the president’s removal authority.

Olson represents the mortgage company PHH Corp. A CFPB administrative judge had ordered the company to pay $6 million for violating a law designed to protect homebuyers, but bureau director Richard Cordray raised the amount to $109 million. At issue is PHH’s practice of referring borrowers to mortgage insurers that had purchased reinsurance sold by a PHH subsidiary.

The bureau, backed by U.S. Sen. Elizabeth Warren, D-Mass., was created to protect consumers. Its actions have rankled Republicans in Congress and financial institutions targeted for their mortgage and auto loan practices.

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