CFPB director Richard Cordray on Capitol Hill in September.
CFPB director Richard Cordray on Capitol Hill in September. (Diego M. Radzinschi/ALM)

Obama administration lawyers on Thursday urged a Washington federal appeals court to revisit a dispute over the structure of the Consumer Financial Protection Bureau, arguing that a panel of judges improperly assessed the extent to which the agency leadership intrudes on presidential power.

The full U.S. Court of Appeals for the D.C. Circuit is weighing whether to review—and potentially reverse—a panel ruling from October that struck down the power structure of the consumer agency. The D.C. Circuit solicited the views of the U.S. Justice Department.

The Justice Department said the panel improperly based its decision on the “view that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers.”

“The panel’s focus on the impact on individual liberty as a freestanding basis for finding a separation-of-powers violation contravenes the analytical framework the Supreme Court has applied,” the Justice Department said in its brief.

Politics soon could make the litigation messy. President-elect Donald Trump’s Justice Department could reverse course, refusing to defend the Obama agency in court. Under the Dodd-Frank Act, which created the CFPB, the agency can freely represent itself in lower federal courts but must first consult the Justice Department before any appearance in the Supreme Court.

And there’s also a more immediate problem for Trump: Whether or not to keep Cordray in power on Jan. 20 when the president-elect takes office. Cordray’s term expires in 2018, and the office told Politico this week the director has no intention of stepping down.

The D.C. Circuit panel decision, written by Judge Brett Kavanaugh, said the president should have the power to remove the director at will, not just for cause. The case will be pending at the time Trump takes office next month. Cordray could resist any move to fire him before his term ends.

Critics of the CFPB argue the structure of the agency should mirror the multimember, bipartisan schemes at the U.S. Securities and Exchange Commission and the Federal Trade Commission. U.S. Rep. Jeb Hensarling, chairman of the House financial services committee, has proposed legislation that would turn the consumer agency into a commission.

Kavanaugh called the CFPB director post, held by Cordray since the agency’s inception in 2010, the single most powerful position in the federal government next to the U.S. president.

The Justice Department questioned Kavanaugh’s assessment, noting that, by his implication, the CFPB director is more powerful than the secretary of defense and secretary of state.

“There can be no serious dispute that the Constitution would not permit Congress to replace the Secretary of Defense with an individual removable only for cause,” the Justice Department wrote in its brief Thursday.

The dispute, which arose in a challenge from the mortgage lender PHH Corp., has garnered significant attention from business and consumer advocates, and from Democratic members of Congress. The U.S. Chamber of Commerce, in an amicus brief, urged the appeals court to rein in the consumer agency’s power.

PHH Corp., represented by Gibson, Dunn & Crutcher’s Theodore Olson, on Thursday told the appeals court it should not disturb the three-judge panel ruling. The panel vacated a $109 million penalty the CFPB imposed on PHH for allegedly referring consumers to mortgage insurers in exchange for kickbacks.

“The director’s autocratic actions are exactly what one would expect from an agency that completely lacks constitutional accountability,” Olson wrote in the company’s D.C. Circuit filing. “Unlike any agency in the history of our republic, the CFPB is structured to give a single person colossal power over a broad swath of the U.S. economy, unconstrained by any executive branch supervision.”

Civil rights groups, including the National Association for the Advancement of Colored People, this week commended the CFPB for its scrutiny of lending practices. The advocates said the CFPB “has significantly improved the lives” of consumers across the country.

“Yet many in the financial industry, like payday lenders and their political allies, have consistently aimed meritless attacks at the CFPB and Director Cordray,” the civil rights groups said. “Any effort to weaken the agency or undermine its leadership would risk severe impacts on our communities—including communities of color and low-income families who are most vulnerable to financial abuse.”