In a long-awaited constitutional decision regarding the Consumer Financial Protection Bureau (“CFPB”), the full D.C. Circuit Court of Appeals today in PHH v. CFPB reversed a prior ruling by a three-judge panel that the CFPB is unconstitutionally structured. As we previously reported, that prior panel’s prior decision — stayed since its issuance in October 2016 — had held that Congress had unconstitutionally impeded the President’s Article II authority to “faithfully execute[]” the laws by creating an independent agency headed by only a single Director (as opposed to a multi-member commission structure). The prior panel’s remedy had been to strike language from the Dodd-Frank Act that makes the Director removable only “for cause,” a change that would have made the Director removable at the pleasure of the President and turned the CFPB from an independent agency into an executive agency, with other regulatory ramifications.

Today’s ruling holds that the removable-only-for-cause provision, even as applied to a single Director, is compatible with the Constitution. Thus, there will be — for now — no changes to the CFPB’s structure. While a different outcome would have had many impacts across time, the status quo should remain intact unless the U.S. Supreme Court disturbs the ruling. Currently, the CFPB is led only by a temporary, “Acting Director,” OMB Director Mick Mulvaney, and the President has not yet submitted to the Senate a nominee to fill that position for a full, five-year term. But once there is a new, Senate-confirmed Director, that person would be removable only “for cause” (technically, for “inefficiency, neglect of duty, or malfeasance in office”), with a term that will last for at least two years into the next four-year presidential term. Separately, today’s ruling also reinstated the prior panel court’s decisions — all adverse to the CFPB — on important issues relating to the Real Estate Settlement Procedures Act (“RESPA”).

On the constitutional question, today’s court saw no legally important distinction between the Supreme Court-approved multi-member independent commission structures — such as those that lead the FTC and the SEC — and the independent single-Director structure of the CFPB. The prior panel and PHH had relied heavily on that distinction, with PHH arguing that “multi-member commissions contain their own internal checks to avoid arbitrary decisionmaking.” The prior panel also noted that whereas staggered, multi-member commissions allow a President in a four-year term to exert some influence by nominating at least some commissioners, a President during a four-year period would on some occasions have such no influence over the CFPB’s Director, who serves a five-year term.

Today’s court found the distinction between a single Director and a multi-member commission “untenable,” with “no footing in precedent, historical practice, constitutional principle, or the logic of presidential removal power.” The “removal-power doctrine,” it said, does not rely on “the competing virtues of various internal agency design choices.” Today’s court also noted that the Supreme Court approved for-cause protection for a single individual in its decision upholding the independent counsel statute.

PHH retains a separate challenge: that the appointment of the ALJ who initially considered its case violated the Constitution’s Appointments Clause. Today’s court did not reach that issue because it recently upheld a closely analogous ALJ-appointment structure at the SEC in Lucas v. SEC. Even more recently, however, the Supreme Court agreed to review that decision regarding SEC ALJs, so PHH possibly could still get a day in court on that issue.

A. RESPA

Today’s court also reinstated the earlier panel’s important decisions regarding RESPA’s prohibition on paying fees / kickbacks for referrals of real estate settlement business. Those RESPA decisions had been stayed, until today, as part of the broader stay on the prior panel’s October 2016 opinion. The reinstated RESPA decisions are that:

  1. Courts and the CFPB must give effect to an important RESPA exception, which allows settlement service providers who receive referrals to pay the referrer, nonetheless, for other “goods or facilities actually furnished or for services actually performed” (but not, of course, for the referral). The novel interpretation advocated by the CFPB in this case would virtually have read this exception out of the books, exposing settlement service providers to increased RESPA risk. The panel court, in the now-reinstated portion of its opinion, held that the exception must apply so long as the payment is for no more than the reasonable market value of the goods or services actually provided.
  2. Even if the Director’s novel interpretation of that RESPA exception in this case had been permissible, the Director violated the Due Process Clause by imposing it on PHH retroactively.
  3. A three-year statute of limitations applies to both administrative proceedings and civil actions (lawsuits in court) enforcing RESPA. Before the panel, the CFPB had taken the position that no statute of limitations applied to its administrative proceedings enforcing RESPA — or, by extension, to administrative proceedings enforcing any of the 18 other consumer protection laws it has authority to enforce. The reinstated portion of the panel’s decision, moreover, held that the CFPB — in administrative proceedings and in court — must abide by applicable statutes of limitations found in those 19 consumer protection laws.

B. Next Steps

PHH may well seek review of this ruling by the U.S. Supreme Court. Although the likelihood of that Court accepting the case cannot be predicted, the Court has previously showed an interest in cases like this one that present issues at the intersection of constitutional and administrative law; the Court’s very recent decision to review the related Lucas v. SEC decision on the appointment of ALJ’s is an example of that interest. Regarding the reinstated RESPA rulings, it is extremely unlikely that the CFPB, now under Republican control, will appeal.

At the CFPB now, as noted, only an Acting Director is in charge. But any new, Senate-confirmed Director would be entitled to serve a five-year term with for-cause removal protection, unless the Supreme Court disturbs today’s ruling. Thus, that new Director, if he or she chooses, could serve at least two years into the next four-year Presidential term.