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Appeals Court Denies Efforts to Defend CFPB in PHH Case

(Updated on Feb. 14.)

Efforts by three different parties to defend the CFPB were thwarted Feb. 2 when a federal appeals court denied the motions to submit briefs on behalf of the CFPB in PHH Corp., et al.v. Consumer Financial Protection Bureau. The three-judge panel of the U.S. Court of Appeals for the D.C. Circuit that denied the motions is the same that ruled in the case last October that the CFPB’s structure is unconstitutional.

The CFPB allies were undaunted and on Feb. 10 filed a petition for rehearing en banc. Motions were filed by Democratic attorneys general from 16 states and the District of Columbia, by Senator Sherrod Brown (D-Ohio) and Representative Maxine Waters (D-Calif.) as well as several public interest groups.

In its decision last year, the court panel determined the CFPB is controlled by a single, “unaccountable, unchecked” director, Richard Cordray, who can only be removed for just-cause, which poses the risk of “arbitrary decision-making and abuse of power” versus a multimember independent agency. The court ultimately ruled that the CFPB could continue operating, but that the director can now be replaced at will.

The bureau filed a petition in November for a rehearing before the entire appellate court. Had the court granted the motions from CFPB supporters to intervene, the supporters would have been able to submit briefs defending the CFPB’s structure in the event of a rehearing of the case. Granting the motions would have been surprising, according to Alan S. Kaplinsky, partner, Ballard Spahr LLP. “In my entire career, I have never heard of someone trying to intervene at the Court of Appeals level related to a petition for rehearing,” he tells Paybefore.

Sen. Brown and Rep. Waters argued in their motion to retain a single director because lawmakers who drafted the Dodd-Frank Act, which established the CFPB, “understood that the nation needed a regulator that could respond quickly and effectively to new threats to consumers . . . and it knew that the CFPB’s effectiveness could be hampered by the delay and gridlock to which commissions are susceptible.”

In addition to the motion by Brown and Waters, attorneys general from Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia filed a motion, defending the CFPB in its current incarnation.

“As the representatives of millions of citizens across the country, the state attorneys general have used their express statutory authority to bring civil actions to enforce consumer financial protection laws and to pursue regulatory actions in coordination with the CFPB to protect consumers against unfair, deceptive and abusive financial practices,” according to the motion. “The current ruling, if permitted to stand, will undermine the power of the state attorneys general to effectively protect consumers against abuse in the consumer finance industry.”

Several public interest groups—Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, Self-Help Credit Union and United States Public Interest Research Group Inc.—and Maeve Brown, chairperson of the CFPB’s consumer advisory board, together filed a joint motion in support of the CFPB. The groups and Brown collectively got involved after “President Trump has voiced strong opposition to the Dodd-Frank reforms that created the CFPB,” according to the motion.

Although not specifically aimed at the CFPB, President Trump already has begun the process of dismantling Dodd-Frank in an executive order he signed Feb. 3. What’s more, Trump met with former U.S. Rep. Randy Neugebauer, a Republican from Texas, on Jan. 11, and he is considered to be in the running to lead the bureau.

The appellate court’s October decision stems from a $109 million enforcement action issued by the CFPB in 2015 against mortgage servicer PHH Corp., alleging kickbacks in exchange for real estate referrals, which is in violation of the Real Estate Settlement Procedures Act (RESPA). The federal appeals court threw out the $109 million order against PHH.

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