CFPB Likely To Appeal Recent Ruling In PHH Case

BLOG VIEW: It appears that the Consumer Financial Protection Bureau (CFPB) has every intention of appealing the recent ruling by a three-judge panel in the D.C. Circuit Court of Appeals that the bureau’s leadership structure is unconstitutional and that its director can be replaced by the president at any time.

During the Mortgage Bankers Association’s Annual Conference and Expo this week in Boston, Richard Cordray, director of the bureau, had very little to say about the court’s recent decision in PHH v. CFPB. However, he did say that “the case is not final at this point” and that the bureau “has made clear that it respectfully disagrees with the panel’s decision and is considering its options for seeking further review.”

“In the meantime, we will continue to consider how best to apply the Real Estate Settlement Procedures Act to specific factual situations just as we always do,” Cordray told the crowd of mortgage bankers and service providers. “In particular, we continue to adhere to our 2015 bulletin identifying the substantial risks posed by marketing services agreements as we have encountered them in our enforcement actions and through our supervisory oversight.”

The CFPB had been seeking a fine of $109 million from mortgage lender PHH Corp. for alleged kickbacks from mortgage insurers. Originally, the fine had been set at about $6.4 million – however, Cordray reportedly unilaterally raised the penalty to $109 million after an additional review revealed an error in how the penalties were calculated.

That led to PHH appealing the ruling. As part of its appeal, the lender argued that the single-director structure of the CFPB runs afoul of Article II of the U.S. Constitution, which details the executive branch of the federal government, and that therefore the case should be dismissed.

Two of the three judges on the appeals court panel agreed, writing in their joint decision that too much power had been given to the CFPB’s director position. However, the court decided to allow the CFPB to continue operating as usual.

Developments in a separate case, CFPB v Intercept, currently playing out in federal Circuit Court in North Dakota, also indicate that the CFPB intends to appeal the PHH court’s ruling with regard to its constitutionality.

In June, the CFPB sued payment processor Intercept Corp. and two of its executives, Bryan Smith and Craig Dresser, for allegedly enabling unauthorized and other illegal withdrawals from consumer accounts by their clients. Although the suit has nothing to do with mortgage lending, Intercept’s attorneys made an additional filing with the court basically pointing out the D.C. Circuit Court’s recent ruling in PHH as a reason to dismiss.

The CFPB, however, quickly filed a response with the court asserting that the PHH case was “wrongly decided” and, furthermore, “does not control the outcome of defendants’ motion to dismiss in [CFPB v. Intercept].”

The CFPB points out that the three judge panel, in arriving at its ruling, did not rely on case law, but rather formulated “a new constitutional rule that agencies must be structured as multimember commissions if their heads are removable only ‘for cause’ rather than at the will of the president.” The bureau argues that this principle “has no basis in the text of the Constitution or in Supreme Court case law.”

Based on this, it will be interesting to see how the court in North Dakota decides in the Intercept case. The CFPB points out that the North Dakota District Court is in the Eighth Circuit and therefore is not bound by the decisions of an appellate court outside of the Eighth Circuit.

The bureau further argues that the D.C. panel’s ruling is not yet final simply because the bureau has not yet had the opportunity to appeal the decision to the full D.C. Circuit or to petition the U.S. Supreme Court.

For now, it appears more than likely that the CFPB will fight the D.C. Circuit Court’s ruling all the way to the top…