CFPB Appeals Ruling That Declared Its Structure Unconstitutional

WASHINGTON—The Consumer Financial Protection Bureau on Friday asked a federal appeals court to reconsider a ruling that declared the agency's structure unconstitutional, expressing its resolve to fight the case that could undermine its authority.

The federal watchdog agency asked a federal appeals court here to grant a review of the case by the entire court after a panel of three judges ruled in October that its single-director structure violated the separation of powers principle. The panel then ordered a new structure that gives the president the authority to dismiss the director at will.

The judges' rebuke of the five-year-old agency gained further importance after Republicans won the White House and control of both houses of Congress in the Nov. 8 elections. That threw into disarray the future of the agency, which was set up under the Obama administration and often criticized by Republican lawmakers as a symbol of government overreach.

Legal experts say that if the October ruling stands, President-elect Donald Trump would dismiss CFPB Director Richard Cordray long before his term expires in 2018.

The agency was widely expected to seek a new hearing from the U.S. Court of Appeals for the District of Columbia Circuit. The three judges on the panel that ruled against the CFPB were all Republican appointees, though they didn't all agree on the same reasoning in their decision. A majority of the judges on the appeals court are Democratic appointees who may be more sympathetic to the bureau.

The case was filed by PHH Corp., a New Jersey mortgage lender, which challenged Mr. Cordray's decision to impose a steep fine for allegedly accepting kickbacks from mortgage insurers.

It could take the appeals court a month or longer to decide whether to grant a fresh review, legal experts say.

The current structure of the bureau effectively remains in place while the litigation continues. If the appeals court reconsiders the case, that process could extend well into 2017, and potentially another year or more if the litigation lands at the Supreme Court.

In Friday's petition, the CFPB argued that the panel's ruling purported to override Congress's explicit determination in the 2010 Dodd-Frank Act to create an independent agency headed by a single person.

The judges had also criticized the CFPB's enforcement action that led to the court ruling and how the bureau interpreted a decades-old law that had long governed industry practices. It ordered the agency to reconsider the penalties that the CFPB had imposed on PHH.

The CFPB said the judges misinterpreted the industry law, in a manner that "so fundamentally defeats the statutory purpose."

Write to Yuka Hayashi at yuka.hayashi@wsj.com

(END) Dow Jones Newswires

November 18, 2016 17:55 ET (22:55 GMT)

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