In a decision released on October 11, 2016, the U.S. Court of Appeals for the DC Circuit issued a very long opinion (110 pages) which vacates an order of the Consumer Financial Protection Bureau (CFPB) that requires PHH Corporation, a large home mortgage lender, to disgorge $109 million in a captive reinsurance arrangement the CFPB held to be illegal. The case is PHH Corporation, et al., v. CFPB. In so ruling, the panel majority, in a decision written by Judge Kavanaugh, holds that the basic structure of the CFPB—an independent agency wielding enormous power over the nation’s economy that is headed by a Director who is largely immune from any Presidential control or direction—essentially operates without any institutional checks on the exercise of his or her authority. Only a few “independent agencies” have ever operated under these conditions, and their powers were quite limited. The Court of Appeals holds that this arrangement has no historical basis and in effect violates the constitutional separation of powers.

The Court of Appeals remedies this constitutional defect by severing the provision of the Dodd-Frank Act that limits the President’s power to remove the Director on only a “for-cause” basis, thereby transforming the CFPB into a normal independent agency subject to the President’s customary power to supervise; the CFPB’s Director can now be removed at any time by the President. Judge Randolph, in concurrence, noted that the enforcement action was presided over by an ALJ who was not in fact an “Inferior Officer” appointed to that position as the Constitution requires, so the administrative enforcement proceedings were constitutionally flawed from that aspect as well. In a partial dissent, Judge Henderson held that the CFPB’s actions were statutorily defective, and could be set aside for that reason alone; there was no reason for the Court of Appeals to rule that the structure of the CFPB was constitutionally defective.

This case is certain to attract plenty of attention for, as the Court of Appeals notes, the Director of the agency “unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone decides what rules to issue, how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the law.”