The Consumer Financial Protection Bureau (CFPB) filed on Nov. 18, 2016, a petition challenging the U.S. Court of Appeals for the District of Columbia Circuit's ruling in PHH Corp., et al. v. Cons. Fin. Prot. Bureau, in which the court found the CFPB's structure to be unconstitutional. The CFPB's petition comes at a critical time. In light of the 2016 election results, many have been questioning whether President-Elect Donald Trump would rely on the D.C. Circuit's opinion to fire CFPB Director Richard Cordray without cause. Any decision to do so without cause may be placed on hold pending the court's resolution of the en banc appeal.
The CFPB's Petition
In its petition, the CFPB addressed the D.C. Circuit's constitutional and statutory holdings.
The CFPB argued that the D.C. Circuit improperly overrode Congress' express desire in the Dodd-Frank Act to create an independent agency led by a single director. Key to the CFPB's argument is the agency's claim that the for-cause removal provision in the Dodd-Frank Act provides the president with control over the director – sufficient control such that there is no violation of separation of powers principles. The CFPB reasoned that an agency with a single director allows the president to hold one person accountable for the agency's actions.
The CFPB argued that the court also grossly misinterpreted the Real Estate Settlement Procedures Act's (RESPA) prohibition on kickbacks. The agency argued that the panel's interpretation would defeat a primary purpose of the act by allowing actors, such as PHH, to make referrals based upon their own economic interests rather than the best interests of consumers.
Interestingly, in its petition, the CFPB largely glossed over the D.C. Circuit's ruling that the CFPB erred by retroactively applying its new interpretation of a "kickback" under RESPA on PHH. Also of interest, the CFPB declined to appeal the D.C. Circuit's ruling limiting its adjudicative reach under RESPA to a three-year statute of limitations period. A synopsis of the D.C. Circuit's ruling is available in this Holland & Knight alert.
Where Does This Leave the CFPB?
The structure of the CFPB as we know it hinges on the success of the CFPB's petition and the decision of the D.C. Circuit. In the short term, the CFPB's petition creates substantial uncertainty. Whether the new administration relies on the initial D.C. Circuit opinion as grounds to fire Cordray before the expiration of the director's term in 2018 remains to be seen. A final decision may not be obtained for months. If the petition is granted, it could be months before the entire circuit renders its decision. Even if the D.C. Circuit denies the petition, the CFPB is entitled to seek review of that decision by the U.S. Supreme Court.