Consumer Financial Services

Sitting en banc, the U.S. Court of Appeals for the DC Circuit ruled that the Consumer Financial Protection Bureau's (CFPB) structure is constitutional. By a vote of 7 to 3, the full panel of judges reversed an earlier panel decision that took issue with the independent agency's single-director structure. The en banc decision left intact the DC Circuit panel's interpretation of the Real Estate Settlement Procedures Act (RESPA). Ultimately, the court remanded the case back to the Bureau for further proceedings consistent with the RESPA-related holdings of the court.

What does this mean for the CFPB?

The en banc decision validates the structure of the Bureau – at least for now. The court left any future changes to the agency's structure to Congress. The opinion of the court broadly supports Congress's prerogative to construct independent agencies in the manner it sees fit. From a legal perspective, the CFPB is free to continue as a single-director-led independent agency, for which the director is removable only "for cause."

What about RESPA and other underlying legal issues?

In a concurring opinion joined by two other judges, Judge Tatel argued in favor of the Bureau's (earlier) statutory interpretations of RESPA. In particular, this concurring opinion supported the CFPB's prior interpretation of "bona fide" payments under Section 8(c) of RESPA – which would limit payments covered by the safe harbor to payments for referral services made "solely for the service actually being provided on its own merits." Moving forward, many will be watching to see whether the Tatel concurrence has the effect of encouraging other courts to exercise some level of flexibility in their interpretations of RESPA. And, of course, affirmation of the panel's RESPA analysis will likely result in a lower civil money penalty for PHH. Moreover, this decision also did not disturb the panel's rejection of the Bureau's unusual argument that the three-year statute of limitations for certain claims, including UDAAP claims, applies only to cases brought in federal district court, and that there is no statute of limitations for these same claims when they are brought in the agency's administrative forum.

What happens next?

Wednesday's ruling has set the stage for a possible Supreme Court duel. However, an application for certiorari will undoubtedly kick up messy procedural questions: Namely, who would represent the Bureau in the nation's highest court? The CFPB alone does not have the authority to represent itself before the Supreme Court without first making a written request to the Attorney General to do so. And, at that, it is not clear whether the current Bureau would seek an appeal, given the potential political ramifications of the court's decision here. Moreover, any petition to the Supreme Court would be further complicated by the fact that the Administration, through the DOJ, has argued that the Consumer Financial Protection Act's "for-cause removal" be severed from the Dodd-Frank Act. Should the question reach the Supreme Court, the Court might, as it did in Lucia v. SEC, appoint a private attorney to argue the Bureau's prior position, as it was presented at the outset of the litigation.