Banking and Finance Law Daily Lawfulness of CFPB single-director structure debated in opposing briefs
Tuesday, December 27, 2016

Lawfulness of CFPB single-director structure debated in opposing briefs

By Colleen M. Svelnis, J.D.

The Consumer Financial Protection Bureau and PHH Corporation have filed briefs for the U.S. Court of Appeals for the District of Columbia Circuit after the bureau petitioned for a rehearing en banc of an Oct. 11, 2016, panel decision. The three-judge panel ruled the CFPB’s single-director structure was unconstitutional, and said the remedy was to treat the CFPB as an executive agency whose director could be fired by the president without cause. CFPB asked the court to rehear an appeal after the panel rejected the bureau’s single-director structure as unconstitutional (see Banking and Finance Law DailyNov. 21, 2016). The PHH asserts in its brief that the decision is rooted in Supreme Court precedent and does not warrant further review.

In addition to the structural deficiencies of the CFPB, the panel also rejected the bureau’s claims that there is no statute of limitations that restricts its ability to enforce the Real Estate Settlement Procedures Act against a mortgage lender that was accused of taking illegal kickbacks (see PHH Corporation v. CFPB, discussed in Banking and Finance Law DailyOct. 11, 2016). However, these briefs only deal with the issue of whether the single-director structure is unconstitutional.

CFPB structure. The CFPB’s brief addresses only the panel’s separation-of-powers holding and not other issues raised by the petition. CFPB argues that the panel’s decision that the CFPB is unconstitutionally structured is incorrect since precedent cited by the panel’s opinion does not forbid an independent agency from having only a single director. According to the brief, it is established that Congress may impose removal restrictions covering the members of independent agencies. Congress can, under certain circumstances, create independent agencies run by principal officers appointed by the President, whom the President may not remove at will, but for cause. The panel concluded that these authorities do not support the constitutionality of the for-cause removal provision applicable to the head of the CFPB. The bureau contends that this raises a "significant constitutional question that the Supreme Court has not yet squarely confronted."

The brief also asserts that the panel did not conclude that the single-Director structure of the CFPB impairs the exercise of Presidential power more significantly than would a multimember directorate, or that the CFPB exercises greater power than multi-member independent agencies, but instead determined that that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers.

PHH’s response. PHH asserted that "no legitimate reason exists to revisit" the panel’s decision and no justification for the full Court to devote its limited resources to retreading ground after delivering a "meticulous, well-reasoned" opinion. PHH asserts that the Court should deny the petition for rehearing en banc. According to the brief, the CFPB is structured to give a single person "colossal power over a broad swath of the U.S. economy, unconstrained by any Executive Branch supervision." The brief states that the CFPB Director:

  • has sole authority to set its budget from funds from the Federal Reserve;
  • can along make, enforce, and adjudge violations of rules under numerous federal statutes; and
  • serves a longer term than the President, and cannot be fired except in a narrowly defined set of circumstances.

PHH’s brief advised that the panel’s conclusion that the agency’s structure lacks the "minimum accountability required" under the Constitution’s separation of powers. According to PHH, the panel adopted the minimalist remedy instead of striking down the agency, as PHH had urged. The brief states it does not warrant further review. It is "is plainly correct irrespective of the separation-of-powers ruling, and it presents no conflict of authority."

PHH’s brief also states that the appellate panel interpreted RESPA according to its plain language and consistently with every other circuit to consider the issue.

Companies: PHH Corporation

MainStory: TopStory CFPB DistrictofColumbiaNews DoddFrankAct Mortgages RESPA

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