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CFPB vs. PHH: Two-Year Battle Coming to a Head


The highly anticipated hearing for the Consumer Financial Protection Bureau (CFPB) and PHH Corporation took place Wednesday in front of the Court of Appeals for the District of Columbia Circuit. The Court of Appeals agreed to revisit their October decision that the structure of leadership in CFPB is unconstitutional brought by PHH.

In October, the three-judge panel for the U.S. Court of Appeals decided the agency was not organized under checks and balances and therefore had to strike “for cause” language out of the leadership structure originally obtained from the Dodd-Frank Act. CFPB challenged this verdict and successfully appealed for an “en banc” review, meaning all the judges on the Appeals Court would be in attendance for the rehearing.

The broadest issue in the case, according to Brian Marshall, Policy Counsel for the Americans for Financial Reform, is whether CFPB is able to remain an independent agency headed by a single director. PHH, which is accused of overcharging its mortgage customers, is arguing that the CFPB cannot be independent and that it has to report directly to the president. The CFPB argued that Congress is able to structure independent agencies as it has with financial regulators for quite a long time and they maintain their independence by keeping their heads in place across administrations.

“We think that [the case] is very similar to the Federal Trade Commission case that the Supreme Court ruled on over 80 years ago, and it's very promising that the full court questioned the panel decision and is willing to take up the case,” Marshall said.

Michael Barr, Professor and Faculty Advisor at the University of Michigan Law School and Gerald R. Ford School of Public Policy, said the thought that the CFPB should not be able to operate as an executive branch agency or as a multi-member commission is missing the point.

“I think the Constitution requires agencies to be accountable but there are lots of ways to achieve that,” Barr said. “The CFPB, in my judgment, is an accountable and effective agency and one that is also independent, and I think that it should be affirmed.”

If the court decides the CFPB is unconstitutional, the outcome will likely be striking the term “for cause”, however the change will give President Trump the option to fire Richard Cordray, CFBP Director, immediately.

“The bureau's first director, Richard Cordray, has been very fair in considering industry side of things all along,” Linda Sherry, Consumer Actions Director of National Priorities said. “He's very measured in most of his actions that he takes and that the bureau takes.”

Sherry said PHH, who brought the lawsuit in 2015, illegally referred consumers to mortgage insurers. This violates The Real Estate Settlement Procedures Act (RESPA), which holds that a mortgage company cannot receive kickbacks for loans that closed on or after a date in 2008.

“I think the most important aspect of this is it's calling into question the ability of the CFPB to do its work to protect consumers,” said Sherry. “It's a red herring, basically, in some ways. It's keeping the consumer bureau from doing its good work, taking resources from it in order to have to fight this sort of thing, and just appears to be politically motivated.”

In the October hearing, the court wrote that because the director alone runs the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director has significantly more unilateral power than any single member of any other independent agency.

“By “unilateral power,” we mean power that is not checked by the President or by other colleagues,” the court wrote. “Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.”

Sherry hopes that the full panel does not agree with the smaller panel. She and the CFPB feel that they are constitutional because there is room for a director to be removed for cause and if companies do not like what the bureau does, they can take them to court.

“It seems to us that there's room for everyone to have their right heard in the end in this scenario in which a company may be unhappy with something that CFPB does,” Sherry said.

According to Marshall, the hearing went well for those that believe the CFPB should continue to be independent.

“The court seemed to recognize that a single director is highly accountable and, in fact, more accountable than a multi-member commission because you know who's making the decisions and the president has the authority to remove that person if they're doing a bad job. All in all I'm just very pleased with how the argument went,” Marshall said.

Though a decision likely will not be made until 2018, comments from Wednesday’s hearing give a good look into the possibilities that are to come.

About Author: Brianna Gilpin

Brianna Gilpin, Online Editor for MReport and DS News, is a graduate of Texas A&M University where she received her B.A. in Telecommunication Media Studies. Gilpin previously worked at Hearst Media, one of the nation's leading diversified media and information services companies. To contact Gilpin, email [email protected].

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