February 2, 2018

Embattled CFPB Catches a Break

D.C. Circuit Finds Structure to be Constitutional After Rehearing En Banc in P.H.H. Corp. v. CFPB
Holland & Knight Regulatory Litigation Blog
Anthony E. DiResta | Brian J. Goodrich

In an about-face, on Jan. 31, 2018, the U.S. Court of Appeals for the District of Columbia Circuit rejected PHH Corp.'s high profile constitutional challenge to the Consumer Financial Protection Bureau's (CFPB) single-director structure. In the opinion for the Court, Judge Pillard announced there to be nothing "constitutionally suspect" about the CFPB's structure, finding the Bureau's degree of independence from the President sanctioned by Supreme Court precedent. This decision comes in the midst of a sea change at the Bureau wrought by President Trump's appointed Acting Director, Mick Mulvaney, after the departure of former Director Richard Cordray's departure from the Bureau to run for Governor of Ohio.

Last year, a three-judge panel of the D.C. Circuit ruled in favor of a constitutional challenge to the Bureau's structure lodged by PHH Corporation and its residential mortgage origination subsidiaries. The panel agreed with PHH's arguments that the Bureau's organization under a single-director, and the President's inability to remove that director at will, to be inconsistent with the President's authority under Article II of the Constitution thus violating the Constitution's separation of powers. That decision, however, was vacated upon the D.C. Circuit's decision to grant the CFPB's petition for rehearing en banc.

Relying heavily on Humphrey’s Executor v. United States, 295 U.S. 602 (1935) and its progeny, Judge Pillard stated that the Supreme Court has long recognized that independent agencies may be organized under a single director. Judge Pillard held that Congress's decision to insulate the Bureau's director from being fired at will by the President to be does not impermissibly infringe on the President's authority to “take Care that the Laws be faithfully executed” granted in Article II of the Constitution. Rather, the President's power to fire the Director for cause dispelled a potential separation of powers concerns. Judge Pillard further explained the Court’s reasoning, noting that the nature of the CFPB's role as a regulator of the marketplace calls for independence, as that independence ultimately protects the national economy from becoming victim to frequent, partisan-motivated changes to the marketplace's regulation.

Some will likely view this decision as a strategic victory for the Bureau. However, the CFPB's victory is far from absolute. The D.C. Circuit's en banc decision agreed with the panel that the CFPB misinterpreted the Real Estate Settlement Procedures Act in its case against PHH Corp., and green-lighted the remand of the question of how much to decrease financial penalties against PHH Corp. to the CFPB.

PHH Corp., et al., v. Cons. Fin. Protection Bureau, Case No. 15-cv-1177 (D.C. Cir. Jan. 31, 2018)

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