A federal appeals court on Tuesday ruled that the structure of the Consumer Financial Protection Bureau is unconstitutional since it is operated by a single person, but the court said that the agency may continue to operate.
The bureau, which was spearheaded by Sen. Elizabeth Warren, D-Mass., after the financial crisis, will operate as a federal agency whose director is supervised and may be removed by the President, according to the court ruling.
"This split decision — which bizarrely relies on a mischaracterization of my original proposal for a new consumer agency — will likely be appealed and overturned," Warren said in a statement. "But even if it stands, the ruling makes a small, technical tweak to Dodd-Frank and does not question the legality of any other past, present, or future actions of the CFPB."
Agency officials vowed to continue their work, although President and CEO B. Dan Berger of the National Association of Federal Credit Unions called for an immediate halt to the CFPB's rulemaking process.
The court was blunt in its ruling.
"The CFPB's concentration of enormous executive power in a single, unaccountable, unchecked director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency," the U.S. Court of Appeals for the District of Columbia said, in its ruling.
The ruling came in a case in which, PHH, a mortgage lender, was the subject of $109 million penalty from the CFPB. The appeals court voided that penalty and sent the case back to a lower court for review.
Opponents of the CFPB, including credit unions and Republican members of Congress have argued that the agency was unconstitutional ever since it was established by the Dodd-Frank Act. Congressional Republicans have attempted to reorganize the CFPB, with the agency being supervised by a commission. However, those efforts have failed.
