Yesterday’s oral argument in the CFPB v. PHH Corporation appeal included sharp questioning about the constitutionality of the Consumer Financial Protection Bureau’s (CFPB) single-director structure, which the parties agreed had few other precedents in American government. This questioning followed an order issued by the panel on April 4, 2016, raising, sua sponte, these constitutional questions. During the argument, Circuit Judge Brett A. Kavanaugh described the CFPB as having a “very unusual structure” and commented, “You are concentrating huge power in a single person and the president has no power over it…” The CFPB’s structure seeks to insulate it from political pressure—among other things, its director can be removed only by the president and only for “inefficiency, neglect of duty, or malfeasance in office,” and the agency’s budget is shielded from the normal congressional appropriations process. Critics, however, have accused the agency of taking that insulation too far and lacking accountability to the elected branches of government.
These constitutional questions have been layered on top of what was already contentious litigation over the CFPB’s first major use of the director’s appellate power in administrative enforcement proceedings. As we previously covered here, on June 6, 2015, Director Richard Cordray issued the first appellate decision of an order of an administrative law judge imposing a $6.4 million disgorgement order on PHH Corporation, a mortgage lender, arising out of alleged RESPA anti-kickback violations. Under the Dodd-Frank Act, the director of the CFPB hears appeals from ALJ decisions in administrative enforcement proceedings. In his decision, Director Cordray affirmed the basic findings of the ALJ but increased the amount of the disgorgement order to $109 million, based, in part, on his finding that the agency is not bound by the statute of limitations in administrative enforcement proceedings. PHH appealed the appellate decision to the D.C. Circuit Court of Appeals. On August 3, 2015, the D.C. Circuit stayed the fine pending appeal.
This case is being closely watched not just because of the late-breaking constitutional questions but also because of industry concerns that the agency seeks to overturn, by enforcement action, allegedly established mortgage industry practices relating to mortgage insurance premiums. A decision is expected within weeks.