Landmark Case Rewrites Rules of Consumer Financial Protection Bureau

a room full of people sitting at desks

A landmark decision has been handed down by the United States Court of Appeals for the District of Columbia Circuit: lending company PHH, which had been fined $109 million by the Consumer Financial Protection Bureau (CFPB) for alleged kickbacks, argued that the CFPB’s decision, and the bureau itself, were unconstitutional.

The court agreed.

According to the court: “The Director of the CFPB is the single most powerful official in the entire United States Government.” That’s a rather shocking statement. But it makes sense, and it echoes the concerns voiced by the lending world over the last year.

Prior to the court’s decision, the CFPB was the only federal agency that was not under the authority of the Executive Branch and the President. The court decided that the CFPB director enjoyed “significantly more unilateral power than any single member of any other independent agency,” and that should change.

So, aside from vacating the $103 million increase in the PHH penalty, the court unanimously decided to bring the CFPB under the Executive Branch of government. Its director will now have to answer to the head of the Executive Branch, the President of the United States, who may remove him/her at any time. This is a big win for PHH (obviously) but also for the real estate and lending worlds at large, which have complained that the CFPB was wielding too much power since its creation.

As a result, the CFPB issued a statement claiming that they will continue working to ensure that markets, financial products, and services are transparent and fair for consumers. It’s worth noting that although the CFPB has been put on a tighter leash, its purpose and its capability to enforce government regulations both remain unchanged.

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