Banking and Finance Law Daily Briefs supporting challenge to CFPB structure filed
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Monday, March 13, 2017

Briefs supporting challenge to CFPB structure filed

By Richard A. Roth, J.D.

A deadline in the PHH Corp. v. CFPB en banc appeal has brought about the filing of seven amicus curiae briefs, as well as PHH Corp.’s own brief. Six of the seven amicus briefs support PHH Corp.’s argument that the Consumer Financial Protection Bureau is structured unconstitutionally because it violates separation-of-powers principles; the seventh relies on an interpretation of the Real Estate Settlement Procedures Act to support the company.

The full U.S. Court of Appeals for the District of Columbia Circuit will decide at least one, and possibly several, issues. In PHH Corp. v. CFPB, (see Banking and Finance Law Daily, Oct. 11, 2016) the majority of a three-judge appellate court panel decided that:

  1. The CFPB’s single-director structure is impermissible for an independent agency.
  2. The proper remedy for the violation is to sever the section permitting the CFPB director to be removed only for cause from the remainder of the Dodd-Frank Act, which would permit the president to remove the director at will.
  3. The CFPB misinterpreted RESPA when it tried to enforce against PHH Corp. a new interpretation of how the act applied to the use of captive reinsurers.

PHH Corp. brief. The brief of PHH Corp. (and its affiliates) focuses on the separation-of-powers and remedy issues, raising the RESPA interpretation issue principally in support of the claim that the CFPB’s unconstitutional structure rendered the bureau dangerously unaccountable.

At the direction of the court, the brief also addresses the potential effect of a decision in Lucia v. SEC that a Securities and Exchange Commission administrative law judge was an inferior officer under the Constitution. The ALJ used by the CFPB in the PHH Corp. enforcement proceeding was, in fact, borrowed from the SEC. Lucia v. SEC is scheduled to be argued before the full court immediately before PHH Corp. v. CFPB, on May 24, 2017.

Support for PHH Corp. Most of the companies and organizations that filed briefs in support of PHH Corp. are interested only in part of the appeal—whether the CFPB’s organization is permissible and, if not, what the proper remedy would be. The RESPA rulings are of little interest to many of them; in fact, their hope is that the court will bypass the RESPA issues and decide the appeal on the constitutional issue. They do not want the appeal to be decided and the case remanded based solely on whether the bureau misinterpreted RESPA, which is a possibility.

A combined group of 13 banking and residential real estate-related organizations did focus its brief on the RESPA issues. According to this brief, the CFPB incorrectly changed a long-standing RESPA interpretation that permitted the use of captive reinsurance companies under appropriate circumstances. The changed interpretation was contrary to the act and to the CFPB’s own regulation. Also, the bureau improperly changed the interpretation and applied the new interpretation in an enforcement action without proper notice, the brief says.

Notably, the attorneys general of 15 states also have filed a brief in support of PHH Corp.’s claim that the bureau organization structure is unconstitutional. They raise a federalism argument not presented by the other supporters.

The attorneys general of 16 states and the District of Columbia previously attempted unsuccessfully to intervene in the appeal, believing that intervention was necessary to protect their ability to enforce provisions of the Dodd-Frank Act. The AGs argued that an independent CFPB is necessary in order to prevent political considerations from interfering with their enforcement efforts.

Other briefs supporting PHH Corp. were filed by:

  • ACA International, which describes itself as “the trade association for the credit-and-collections industry” and claims more than 3,700 members;
  • State National Bank of Big Spring and two advocacy organizations that are parties to another challenge to the CFPB’s organization that currently is pending before the U.S. District Court for the District of Columbia;
  • the Cato Institute;
  • the U.S. Chamber of Commerce; and
  • RD Legal Funding, LLC, and affiliated companies that describe their business activities as “legal funding,” as well as a senior company executive, all of which are defendants in a different CFPB enforcement action.

The case is No. 15-1177.

Companies: PHH Corporation

MainStory: TopStory CFPB DistrictofColumbiaNews DoddFrankAct EnforcementActions RESPA

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