DOJ Criticizes Ruling on CFPB’s Constitutionality


WASHINGTON – The Department of Justice is criticizing an appeals court ruling striking down the Consumer Financial Protection Bureau’s single-director structure, saying the decision overstepped Supreme Court precedent.

The CFPB has appealed the ruling. In an amicus filing before the U.S. Court of Appeals for the D.C. Circuit Thursday, the Justice Department supported the bureau’s petition for an en banc rehearing of PHH v. CFPB. Among other things, the DOJ said the court likely should not have even considered the issue of the CFPB structure’s constitutionality. (The court had invited the Justice Department to submit the brief.)

At issue is PHH’s legal challenge of the CFPB’s $109 million fine over what the bureau said amounted to a kickback scheme. PHH had argued that the CFPB could not make new interpretations of the law at the center of the alleged violations because the agency’s director could not be fired by a sitting U.S. president except for cause. The single-director structure for an independent agency vests an unconstitutionally large amount of power outside of the president’s direct control, PHH claimed. The D.C. Circuit agreed, effectively nullifying the CFPB’s independent status by allowing the president to remove the director for any reason.

But in its brief, the Justice Department argued that the court’s October ruling articulated a constitutionality test regarding the validity of independent agencies that little resembles Supreme Court precedent.

“The panel’s opinion was … premised on its view 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,” the department’s brief said. “If they do not constitute such an impediment [to the President], the Supreme Court has not suggested that a court should then undertake an additional inquiry into whether a single-headed agency threatens individual liberty to a greater extent than a multi-headed agency.”

In fining PHH, the CFPB alleged the company would steer borrowers toward mortgage insurance vendors that would buy reinsurance from a company owned by PHH. The CFPB based its fine on a new interpretation of the Real Estate Settlement Procedures Act, known as Respa, which was substantially different from previous interpretations made by the Department of Housing and Urban Development. PHH argued in its legal challenge that the CFPB had no business applying a new interpretation of an existing law retroactively, and a lower court agreed.

The Justice Department said that the full appeals court could also reasonably conclude that the ruling should not have considered the constitutionality question at all, since courts generally decline to make constitutionality rulings if there are other ways of dispensing with a case. In PHH, the plaintiff sought one specific form of relief: a “vacatur” of the CFPB’s order against it. And having granted that relief, the court should have simply stopped there, DOJ argued, rather than linking the constitutionality issue to the plaintiff’s request for relief.

“There is no uncertainty as to the question of severability … that would require the Court to address the merits of the separation-of-powers claim,” the amicus brief said. “If the case is remanded, and the CFPB continues to pursue action against PHH, petitioners may renew their constitutional challenge.”

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