Home > Personal Finance > Appeals Court Rules CFPB’s Structure Is Unconstitutional

Comments 0 Comments

A federal appeals court ruled the structure of the Consumer Financial Protection Bureau (CFPB) unconstitutional, in a decision issued Oct. 11 (PHH Corp. v. CFPB).

That may seem like a victory for people and agencies who, to put it lightly, aren’t huge fans of the CPFB, but whether or not this has a huge impact on the CFPB’s ability to enforce consumer protection laws remains to be seen. The president can now remove the director of the CFPB at will, so the effect of the ruling relies on the whims of future presidents. The way the agency was created, the director of the CFPB could only be removed from their position for cause, meaning “inefficiency, neglect of duty or malfeasance in office,” during the director’s five-year term. The Senate confirmed Director Richard Cordray’s appointment to the post in 2013, so his term expires in 2018. Should the ruling stand, the next president could now replace him before 2018 if he or she disagrees with his policy positions or the direction Cordray is taking the agency.

The court opted to remove two words (“for cause”) describing the structure of the bureau to fix the constitutional problem, which, in the exact words of the ruling, “will not affect the ongoing operations of the CFPB.”

Historically, independent federal agencies with significant power have been run by boards or commissions made up of multiple people. The CFPB, with its ability to enforce consumer protection laws and issue guidance on such laws, is one of those powerful agencies, but all that influence was concentrated into a single director.

That concentration of power and the limits on the president’s ability to remove that person from power is what made the court rule the CFPB’s structure unconstitutional.

“PHH contends that the constitutional flaw means that we must shut down the entire CFPB (if not invalidate the entire Dodd-Frank Act) until Congress, if it chooses, passes new legislation fixing the constitutional flaw. But Supreme Court precedent dictates a narrower remedy. To remedy the constitutional flaw, we follow the Supreme Court’s precedents, including Free Enterprise Fund, and simply sever the statute’s unconstitutional for-cause provision from the remainder of the statute,” the appeals court wrote in its ruling. “With the for-cause provision severed, the President now will have the power to remove the Director at will, and to supervise and direct the Director.”

Concerns about this ruling vary and many groups — from consumer advocacy organizations to banking industry associations — have issued statements on the matter. Some expressed disappointment, while others claimed it wouldn’t change the bureau’s ability to enforce consumer protection laws and others still called for more changes to the CFPB, mostly in how future presidents choose to supervise future directors.

Image: AndreyPopov

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team