A federal court will hear oral arguments Wednesday for a case that could have broad implications for the future of the Consumer Financial Protection Bureau at a time when the watchdog is facing intense scrutiny from Republicans and financial groups that want to defang the agency.
One key question that could be addressed by the panel of 11 judges in the U.S. Court of Appeals for the District of Columbia Circuit is whether the structure of the agency — which has an independent director who can only be removed by the president for cause — is constitutional.
The case is playing out as some Republican lawmakers continue to call on President Trump to fire the current director, Richard Cordray, who was appointed by President Barack Obama and whose term will not end until July 2018.
Removing the independent director could make the agency more vulnerable to political shifts in Washington by giving the president more control over the direction of future rules and enforcement actions, some consumer advocates and policy analysts say. While the director of the CFPB is appointed by the president, a five-year term ensures that a director’s tenure will have some overlap from one presidential term to the next.
In October, a three-judge panel ruled that the agency should be restructured so that the director could be removed by the president at will. The court compared the consumer watchdog to other independent agencies, which are often run by a group of commissioners or a director who can be fired by the president at any time.
But the decision was vacated after the CFPB appealed and was granted the opportunity for the case to be reheard by the full panel of judges, a rare move for the court that analysts say is reserved for the most important cases.
It is not clear when the panel will issue a decision, but supporters of the agency say a ruling in favor of the CFPB could add more legitimacy to the regulator’s current structure — even as there are efforts in Congress to limit its powers.
“This is a really important case,” said Michael Landis, litigation director for U.S. Public Interest Research Group, a consumer advocacy group. “It would sort of quell these other doubts that are out there.”
But even when the court makes its ruling, that may not be the final say in how the CFPB should be run. Many groups are also keeping an eye on the Financial CHOICE Act, a bill introduced by Rep. Jeb Hensarling (R-Tex.) in April that would dramatically roll back the CFPB’s ability to make rules and take enforcement actions.
The legislation would give the president the power to remove the director at will, and it would give Congress control over the agency’s funding by making the CFPB a part of the annual budget process. Currently, the agency receives funding directly from the Federal Reserve.
Some business groups and Republicans say that changing the structure of the CFPB could add more oversight for an agency they say has too much control over companies and consumers. “There are very few checks and balances on a very powerful bureau,” said Richard Hunt, president and chief executive of the Consumer Bankers Association, an industry trade group.
When the CFPB was created in 2010 under the Dodd Frank Act, the appointment of an independent director was meant to help shield the agency from lobbying forces and powerful groups on Wall Street, says Brian Simmonds Marshall, policy counsel for Americans for Financial Reform, a consumer advocacy group.
There is a chance that the court could avoid addressing the constitutionality of the agency and focus instead on a narrower point: Whether the CFPB has the authority to ban mortgage lenders from requiring borrowers to buy mortgage insurance from a specific company.
That was one of the questions raised by PHH Corp., a mortgage lender that filed the lawsuit challenging an enforcement action from the CFPB and calling for the agency to be eliminated.
In the original ruling, Judge Brett Kavanaugh, who wrote the lead opinion, voided the enforcement action. He also decided that the CFPB should continue to exist, but he said the agency should be restructured.
The CFPB and PHH declined to comment for this article.
The rehearing of the case will have a unique twist. Judges will also hear from the Justice Department, which filed a brief in March suggesting that the Trump administration is supporting PHH. The brief argued that the structure of the agency is unconstitutional and that the president should be able to remove the director at will.