The Consumer Financial Protection Bureau has again told the U.S. Court of Appeals for the District of Columbia Circuit that the Constitution permits the bureau to exist as an independent agency with a single director who can be removed by the president only for cause. The CFPB’s brief for the en banc rehearing was supported by seven amicus curiae briefs filed by a number of state attorneys general, current and former members of Congress, public advocacy organizations, and interested individuals. All were filed on March 31, 2017.
The genesis of the suit was an effort by the CFPB to enforce against PHH Corporation and affiliated companies a revised interpretation of how the Real Estate Settlement Procedures Act applied to the use of captive reinsurance companies. Based on its changed interpretation, the bureau decided that PHH Corp. and the affiliates had violated RESPA and entered a $109 million disgorgement order.
PHH Corp. appealed the result of the administrative enforcement proceeding. In PHH Corp. v. CFPB (see Banking and Finance Law Daily, Oct. 11, 2016), the majority of a three-judge panel of the D.C. Circuit decided that:
- The CFPB’s single-director structure is impermissible for an independent agency.
- 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.
- The CFPB misinterpreted RESPA and violated the Constitution when it tried to enforce its new interpretation against PHH Corp.
The CFPB’s subsequent request for a rehearing by the full court was granted. In its order, the court specifically asked both sides to address three issues:
- Is the single director structure a violation of the separation of powers principles and, if so, is severing the removal for cause requirement the proper remedy?
- Would it be proper to decide the case based on the RESPA interpretation issues and avoid deciding the larger constitutional issue?
- What effect, if any, would a decision in Lucia v. SEC, a challenge to the constitutionality of administrative law judge appointments, have on the PHH Corp. case?
Bureau’s brief. According to the CFPB’s brief, the structure created by the Dodd-Frank Act is constitutional because neither the single-director arrangement nor the for-cause restriction on the president’s removal powers prevent the president from carrying out his constitutional duty to see that the nation’s laws are implemented. Should the court disagree, the bureau adds that severing the for-cause restriction is the proper remedy, not invalidation of the entire CFPB.
The CFPB also continues to assert that its RESPA interpretation is correct, that PHH Corp. and its affiliates violated RESPA, and that the act’s statute of limitations does not apply to the bureau’s administrative enforcement authority. It is possible that the appellate court will decide the appeal strictly on the RESPA issues and remand the proceeding to the CFPB to reconsider whether an enforcement order remains appropriate. While this result might well please PHH Corp., because the company would be freed from the onerous disgorgement order, the bureau and the amicus curiae briefs on both sides have argued against it.
The issue in Lucia v. SEC is whether a Securities and Exchange Commission administrative law judge was an inferior officer who was not constitutionally appointed. During its administrative proceeding against PHH Corp., the bureau borrowed an ALJ from the SEC. That creates a possibility that a decision against the SEC in Lucia also could invalidate the bureau’s enforcement order. Should that happen, the CFPB has asked that the entire proceeding be remanded to give it the opportunity to conduct new proceedings using a properly appointed ALJ.
Amicus curiae briefs. Amicus curiae briefs supporting the bureau’s position were filed by:
- attorneys general of 17 states and the District of Columbia, who are concerned that their enforcement authority under the Dodd-Frank Act will be harmed by a need to consult and cooperate with a CFPB director who is not independent;
- a group of 41 current and former members of Congress who argue that Congress had the constitutional authority to protect agency heads from being removed without cause and that the ability to remove the bureau director only for cause allows the president to see that the nation’s laws are "faithfully executed";
- a nationwide group of consumer advocacy organizations led by Americans for Financial Reform, Center for Responsible Lending, and U.S. PIRG, which asserts that Congress has the authority to balance independence against accountability by making an agency head removable only for cause;
- a separate nationwide group of consumer advocacy organizations including Public Citizen, Consumer Federation of America, Consumers Union, and National Consumer Law Center, which focuses its argument on the need for an independent CFPB that will act in the interests of consumers rather than the financial services industry, and argues that there is no constitutional difference between a multi-member commission and a single director;
- AARP, which focuses its arguments on supporting the CFPB’s RESPA interpretation;
- a group of academics, self-described as financial regulation scholars, which argues that the Constitution requires that agencies be accountable but does not specify how accountability should be achieved, that the CFPB is sufficiently accountable, and that the bureau’s structure should not be rejected simply because it has not been used before; and
- a second group of academics, self-described as separation of powers scholars, which asserts that the CFPB’s organization is constitutional because it does not impede the president’s ability to "take care that the laws be faithfully executed" by removing an agency head, for cause, if the agency head fails to execute the laws.
The en banc arguments in PHH Corp. v. CFPB and Lucia v. SEC both are set for May 24, 2017.
The case is No. 15-1177.
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