Business & Tech

Appeals court will reconsider ruling on consumer agency

CFBP director Richard Cordray is an Obama appointee.
Steve Helber/Associated Press/File
CFBP director Richard Cordray is an Obama appointee.

WASHINGTON — A federal appeals court said Thursday it will reconsider an earlier ruling that would have made it easier for President Trump to fire the head of the government’s consumer finance watchdog agency.

The decision offers at least temporary job security for Richard Cordray, the director of the Consumer Financial Protection Bureau who has been attacked by Republicans for his aggressive oversight of the banking industry.

A divided three-judge panel had ruled last year that the way the bureau is organized violates the Constitution’s separation of powers by limiting the president’s ability to fire the agency director. That 2-1 ruling would have given Trump the power to dismiss Cordray for any reason, a move some GOP lawmakers have sought.


But the full US Court of Appeals for the District of Columbia said it would grant a request from the bureau to throw out that ruling and hear arguments in the case again on May 24.

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Cordray is a Democrat and Obama appointee whose five-year term doesn’t end until next year.

The banking industry has viewed the bureau, which was proposed by Elizabeth Warren before she became a senator from Massachusetts, as a thorn in its side and accused it of overreaching in its regulation of consumer financial activities. Trump had promised during his campaign to dismantle the 2010 law that created the bureau in response to the financial crisis that struck in 2008.

The bureau was created to protect consumers from harmful banking and lending practices. But Wall Street interests, the banking and consumer finance industries, and Republicans in Congress have fiercely opposed and criticized the agency.

The law creating the independent agency says its director can only be removed ‘‘for cause,’’ such as neglect of duty, and not over political differences. The three-judge panel said that conflicts with the Constitution, which allows the president to remove executives for any reason.


That problem can be solved, the panel said, by taking out the ‘‘for cause’’ provision — giving the president the power to remove the director at will, and to supervise him or her.

Cordray has run the agency since it began operating in July 2011. His term doesn’t expire until 2018. But the court’s previous ruling would have allowed the president to fire him before then.

As the agency’s director, Cordray exercises more power than would be the case with a five-member commission, which is often the structure atop independent federal agencies. The members of such commissions normally are split between the political parties.

Under Cordray’s leadership, the agency has aggressively taken action against banks, mortgage companies, credit card issuers, payday lenders, debt collectors, and others. The bureau says that over five years it has recovered $11.7 billion that it returned to more than 27 million harmed consumers.

The case before the appeals court involves allegations that New Jersey mortgage lender PHH Corp. was involved in a scheme to refer customers to certain mortgage insurance companies in exchange for illegal kickbacks. The bureau ordered the company to repay $109 million in illegal payments it had received. PHH claimed its conduct was legal and challenged the agency’s structure as unconstitutional.


The case will now be heard by a panel of 10 judges, six appointed by Democratic presidents and four appointed by Republicans. All three judges on the panel that issued the previous ruling were named by Republican presidents.

A bureau spokeswoman did not immediately respond to a request for comment.