Courts just threw a lifeline to the Consumer Financial Protection Bureau

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A full panel of judges will decide whether the structure of the Consumer Financial Protection Bureau is constitutional, according to court documents filed Thursday, throwing a lifeline to the embattled agency.

The administration of Donald Trump is hostile to the CFPB, which is charged with protecting consumers from abuse by banks and other financial institutions. The bureau is an independent institution run by a single director, Richard Cordray. He serves a five-year term, and the president has limited power to remove him from office.

Mortgage servicer PHH filed a lawsuit in 2014 challenging the CFPB's authority. In October, a three-judge panel of U.S. Court of Appeals in Washington found that the agency's structure is unconstitutional. But on Thursday, the court granted the CFPB's request for a review by a broader set of judges.

Oral arguments are scheduled for May 24.

"It gives us a much better shot at protecting the CFPB," said Ed Mierzwinski, senior fellow at U.S. PIRG, a consumer advocacy group. "It's a very significant step forward."

Shoppers line up to pay for their merchandise at a checkout counter in a Target store.
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The agency was one of the centerpieces of former President Barack Obama's efforts to reform the financial system after the 2008 financial crash. But the agency has come under fire since Republicans swept the White House and Congress in the fall. House Financial Services Chairman Jeb Hensarling, R-Texas, is expected to introduce a bill soon that would make it easier to remove the director and scale back its enforcement powers. Speaking on CNBC on Thursday before the ruling, Hensarling called the institution a "rogue agency."

"No person in America, particularly an unelected person, should have the power, unilaterally, to decide what credit cards should go in our wallet, whether or not we can have a mortgage, and whether or not, if we like our banker, we can keep her," Hensarling said. "This agency is just out of control."

Meanwhile, a dozen Republican senators led by Sen. David Perdue of Georgia introduced a bill this week that would give lawmakers control over the CFPB's purse strings. Currently, the CFPB is funded through the Federal Reserve.

The White House has already begun preparing to remove or replace Cordray, regardless of the outcome of the court's review. It has begun reaching out to potential successors, including Fannie Mae Vice President Brian Brooks and Todd Zywicki, an economist at the Mercatus Center at George Mason University, according to people familiar with the discussions.

"The court's decision only creates further uncertainty regarding the constitutionality of the CFPB," said Richard Hunt, president of the Consumer Bankers Association. "Congress and the administration must move immediately to address this concern on behalf of consumers."