CFPB, PHH curry court’s favor with competing, combative arguments

Servicing

With a landmark decision looming, the Consumer Financial Protection Bureau and PHH are continuing their legal battle and attempting to sway the U.S. Court of Appeals for the District of Columbia Circuit into either upholding the court’s initial ruling that declared the agency’s leadership structure unconstitutional or agreeing to rehear the case.

Recently, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that the CFPB’s leadership structure was unconstitutional and vacated a $103 million increase to a $6 million fine levied against PHH by CFPB Director Richard Cordray.

The shockwaves from the decision were still reverberating when the CFPB appealed the court’s initial decision, asking the court for an en banc review, which would mean the entire court would rehear the case.

Late last month, the court ordered PHH to respond to the court regarding the CFPB’s request.

Now, PHH and the Department of Justice, on behalf of the CFPB, are weighing in with additional, competing responses, attempting to convince the court that their side is right.

The responses, recapped here by Ballard Spahr, show that the court still has much to consider in the case, and also show just how much each side supports their particular viewpoint.

“In a meticulous, well-reasoned opinion, the panel, adhering to Supreme Court precedent, crafted a modest remedy for an egregious violation of the constitutional separation of powers,” PHH opens its brief, referencing the court’s initial decision.

“It also restored a long-settled interpretation of the Real Estate Settlement Procedures Act of 1974,” PHH’s brief continues. “There is no justification for the full Court to devote its limited resources to retreading this ground.”

PHH also had strong words for Cordray, who used his power to increase a $6 million fine against PHH to $109 million over violations of RESPA.

PHH challenged both the fine and Cordray’s ability to unilaterally add to the fine, suggesting that the CFPB was not constitutionally structured due to the centralization of power at the director position.

The court agreed with PHH initially, and in its brief, PHH doubles down in its belief that Cordray acted unreasonably.

“The Director’s autocratic actions are exactly what one would expect from an agency that completely lacks constitutional accountability,” PHH states.

“Unlike any agency in the history of our Republic, the CFPB is structured to give a single person colossal power over a broad swath of the U.S. economy, unconstrained by any Executive Branch supervision,” PHH continues (emphasis is PHH’s).

For PHH, the argument against rehearing the case is simple.

“The panel’s conclusion, which horrifies the CFPB, simply means that an agency of the Executive Branch will be answerable to the Chief Executive,” PHH argues. “That is not en banc-worthy.”

The government, on the other hand, finds fault with the court’s original decision, and argues that the decision is “at odds with the relevant Supreme Court precedent.”

Here’s a short selection of the government’s 21-page argument:

The panel here did not conclude that the single-Director structure of the CFPB impairs the exercise of Presidential power more significantly than would a multimember directorate. The panel also did not conclude that the CFPB exercises greater power than multi-member independent agencies, and a comparison of the functions performed by the Federal Trade Commission and other independent regulatory bodies, on the one hand, and those performed by the Director of the CFPB, on the other, does not furnish a basis for drawing a constitutional distinction between the agencies on those grounds.

The panel’s opinion was, instead, 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. Our constitutional structure, and the separation of powers in particular, are ultimately designed to protect individual liberty. Bowsher v. Synar, 478 U.S. 714, 721 (1986). To that end, the Supreme Court has considered whether “removal restrictions are of such a nature that they impede the President’s ability to perform his constitutional duty.” Morrison, 487 U.S. at 691.

If they do not constitute such an impediment, 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. While the effect of a particular statutory arrangement on individual liberty may shed light on whether it constitutes an impermissible intrusion on Presidential power or on the functioning of the Executive Branch, the possible impact on individual liberty has not been an independent inquiry.

For a full recap from Ballard Spahr and links to PHH’s and the government’s full arguments, click here.

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