What Judge Kavanaugh Confirmation Means for the Future of the CFPB

Blog posted On October 16, 2018

Earlier this month, the Senate voted to confirm Judge Kavanaugh to the Supreme Court, solidifying a conservative tilt.  The latest balance shift has many in Washington revisiting the question of what will happen to the Consumer Financial Protection Bureau’s (CFPB) leadership structure. Previously, Kavanaugh has written that he believes the way the CFPB is currently structured is unconstitutional.   He also authored the Court of Appeals decision in the PHH Corp. vs CFPB case that declared the CFPB leadership structure unconstitutional in 2016. 

Kavanaugh wrote in his decision, “As an independent agency with just a single Director, the CFPB represents a sharp break from historical practice, lacks the critical internal check on arbitrary decision making, and poses a far greater threat to individual liberty than does a multi-member independent agency.  All of that raises grave constitutional doubts about the CFPB’s single-Director structure.”

Since former CFPB Director Richard Cordray resigned, Acting Director Mick Mulvaney has headed the bureau.  Mulvaney, himself, has questioned the constitutionality of the agency’s leadership structure.  Kavanaugh claimed that the CFPB director was more powerful than the speaker of the House, the chief justice of the Supreme Court, the chairman of the Federal Reserve, and the secretary of Defense. 

However, earlier two years later the full Court of Appeals overturned Kavanaugh’s ruling, declaring the CFPB to be constitutionally structured.  The full court compared the case against the CFPB to a, “wholesale attack on independent agencies – whether collectively or individually led – that, if accepted, would broadly transform modern government.”  PHH had the opportunity to challenge the decision but chose not to once the Court of Appeals vacated the $100+ million fine levied against the lender.

Opponents of the CFPB’s leadership structure claim that because the CFPB director holds too much power since they can only be removed by the President in the vent of “inefficiency, neglect of duty, or malfeasance in office.”  The President cannot remove the director at will. In its landmark case, PHH argued that since the Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC) have administrative boards to rule on cases and issue decisions, the CFPB should be structured the same way.  If a case involving the CFPB’s leadership structure does make it to the Supreme Court, political analysts are wondering if Kavanaugh will vote along the lines of his previous decisions.

The CFPB was organized as an independent agency following the Financial Crisis as a way to regulate financial institutions.  The purpose of the CFPB is to “promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.”  There have been no significant changes to the CFPB since its inception, until this year.  In May 2018, President Trump signed a law repealing the enforcement of automobiles lending rules and later another law exempting dozens of banks from the CFPB's regulations.  With the continued change in today’s political climate it is distinctly possible that further financial-related reform could take place.

Sources: CNBC, HousingWire, the Washington Post