‘We the People’

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A federal court questions the CFPB’s actions and constitutionality

By Joe Gormley

Is the Consumer Financial Protection Bureau constitutional? That’s a question that has been hotly debated since the CFPB was established. Now a federal panel of judges is considering the same question.

In oral arguments in a recent federal court case, a panel of appellate judges voiced skepticism of the CFPB’s decision to increase an administrative penalty against a mortgage lender. But the judges also questioned the constitutionality of the bureau’s structure.

The U.S. Court of Appeals for the D.C. Circuit is considering the case PHH Corporation v. Consumer Financial Protection Bureau, in which mortgage lender PHH Corp. of Mt. Laurel, N.J., is appealing a June 2015 decision by CFPB Director Richard Cordray to increase a $6 million administrative penalty against the company to $109 million.

Cordray’s decision held that PHH violated the Real Estate Settlement Procedures Act by accepting payments for the referral of a settlement service business as part of a captive reinsurance arrangement. The decision followed the first appeal of an administrative trial before a CFPB administrative law judge.

PHH is challenging the penalty increase, in part by arguing that RESPA’s statute of limitations should have limited the CFPB’s administrative action. The lender also has charged that the bureau’s single-director structure and lack of congressional oversight of the agency’s budget violate the U.S. Constitution.

The CFPB maintains that its power to enforce RESPA and other rules under its jurisdiction through administrative actions, as opposed to a judicial proceeding, is unchecked by any statute of limitations. The bureau argues that it theoretically could impose a penalty on any company it regulates for misbehavior that went back decades.

ICBA and other trade groups filed an amicus brief in the case supporting PPH. The brief argues that the CFPB’s 2015 decision violates the plain text of RESPA, ignores years of interpretative guidance and the bureau’s own regulations, and raises the specter of further regulatory changes without notice, which could force smaller entities to exit the marketplace.

During oral arguments, the judges pushed back on the CFPB’s view of its open-ended authority to impose enforcement actions retroactively. The judges asked lawyers for both parties in the case to explain where they think a law is ambiguous to the statute of limitations where the line should be drawn.

While the CFPB maintained that Congress intended that there be no statute of limitations on the agency’s administrative actions, PHH’s counsel argued that the same statute of limitations that applies to RESPA judicial proceedings should have bound the bureau in its case against PHH. The judges’ line of questioning suggests that they may want to read a statute of limitations into the bureau’s ability to pursue administrative actions under RESPA and perhaps other laws it enforces. 

The judges also were very interested in the CFPB’s structure and how it compared with other independent agencies. PHH argued that the bureau’s unique structure—which places its budget outside of the control of Congress and only allows the director to be dismissed “for cause” as opposed to serving at the pleasure of the president—makes the agency unconstitutional because it is virtually unaccountable to any elected official. Responding to a string of questions from the judges, the bureau’s counsel admitted that there is no other single-director agency in which the director can only be removed for cause and is not subject to the appropriations process.

A decision in the case is expected later this year. It is impossible to predict where the court may land, but the tenor of the oral argument suggested that the judges were sympathetic to PPH’s positions. Given the stakes, no matter the outcome, an eventual appeal to the U.S. Supreme Court is likely.


Joe Gormley (joseph.gormley@icba.org) is ICBA’s assistant vice president, regulatory counsel.

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