A trio of federal judges this week granted a stay to PHH Corp. regarding the company’s $109 million penalty for allegedly accepting kickbacks from mortgage insurers, a decision that calls into question the very constitutionality of the Consumer Financial Protection Bureau.
On Monday, U.S. Circuit Court of Appeals Judges Karen Henderson, Patricia Millett, and Robert Wilkins stayed the August 5 deadline, by which the New Jersey-based mortgage services provider was supposed to pay a fine levied by CFPB director Richard Cordray. In June, Cordray, in agreement with a November 2014 recommended decision by Administrative Law Judge Cameron Eliot, decided that PHH had accepted kickbacks for illegally referring consumers to mortgage insurers as far back as 1995.
Almost immediately, PHH and its lawyers, Los Angeles-based Gibson Dunn & Crutcher, petitioned the District of Columbia U.S. Circuit Court of Appeals to “modify or set aside civil investigative demand” while the company made its case against what it called an abuse of power by the CFPB. The petition also called the bureau‘s constitutionality into question, saying that the director has sole power to fund his agency without having to answer to the president or Congress.
“Never before has so much authority been consolidated in the hands of one individual shielded from the president’s control and Congress’s power of the purse,” the petition stated. This, it claims, puts the CFPB director’s power and tenure at odds with the U.S. Supreme Court’s Free Enterprise Fund v. Public Company Accounting Oversight Board decision from 2010.
On Monday, the federal motions panel issued an order stating that PHH had “satisfied the stringent requirements for a stay pending appeal.” PHH spokesman Dico Akseraylian told DS News that the company was gratified by the unanimous decision based on those requirements, which he said “include a likelihood of success on the merits.”
Despite the relief for PHH, it has been a rough second quarter. According to the company’s Q2 statement, PHH suffered a $62 million net loss last quarter and spent $34 million on legal and regulatory expenses.
Something to note, however, is that the panel’s stay order was a mere paragraph and did not specify whether the judges’ decision was related to PHH’s constitutional arguments. Still, the stay issued in the wake of such a strongly argued petition is hard to ignore and it puts the structure of CFPB under scrutiny for the first time. If the constitutionality of the bureau was a factor in the panel’s decision, it lines up the case for review by a federal court of appeals.