CFPB Passes One Constitutional Test but Another Looms

CFPB  •  Litigation

Thumbnail for 1318Last week, the United States District Court for the District of Columbia rejected a constitutional challenge to rules promulgated by the CFPB. In State National Bank of Big Spring v. Geithner, the plaintiffs (a small Texas bank and other interested parties) challenged the Bureau’s regulatory authority on separation-of-power and recess-appointment grounds.  The DDC concluded that the Bureau’s actions were not tainted by Director Richard Cordray’s recess appointment, but it refrained from addressing the plaintiffs separation-of-powers challenge because the DC Circuit is likely to address that issue in its upcoming decision in PHH Corp. v. CFPB, which is expected this summer.

In 2012, the plaintiffs sued the Bureau (along with several other federal agencies and agency directors) asserting that the CFPB’s structure violates separation-of-powers principles by impermissibly vesting legislative, judicial, and executive functions in a single agency over which Congress has no funding authority and which is headed by a director who can only be removed by the President for cause. Additionally, the plaintiffs argued that Director Cordray’s recess appointment was unconstitutional because he was not appointed with the advice and consent of the Senate and because the Senate was in session when he was appointed.  They argued that, as a result, any action taken by the Bureau after that appointment was invalid.  In August 2013, The DDC dismissed the complaint in its entirety on standing grounds, but the DC Circuit reversed, remanding both constitutional issues.  In particular, the DC Circuit asked the District Court to consider the recess appointment question in light of the Senate’s ultimate confirmation of Director Cordray after President Obama re-nominated him in 2013.

Last week, Judge Huvelle took up the recess-appointment question on cross motions for summary judgment. The Court concluded that the CFPB’s actions were not invalid because Director Cordray had ultimately been confirmed by the Senate and because he had ratified all of the Bureau’s earlier actions after that confirmation.  As noted above, the Court expressly held in abeyance any ruling on the separation-of-powers issue pending the DC Circuit’s decision in PHH.  Although there is no deadline for the DC Circuit to issue its decision in PHH, watchers expect the order to be issued in the near future.

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