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05.24.17

CFPB En Banc Hearing in PHH Case Held May 24

Updated May 24, 2017

Oral arguments in PHH Corp. et al v. CFPB were held May 24 in front of all active judges from the Federal Court of Appeals for the D.C. Circuit, following the CFPB’s successful appeal for and en banc hearing. At stake: the conditions under which the president may remove the director and the statute of limitations on enforcement actions.

The hearing re-examined the court’s October 2016 ruling, in which a panel of three judges from the D.C. Circuit determined the CFPB’s structure is unconstitutional because it’s an independent agency led by a single individual who can only be removed by the president for cause. The panel’s decision was vacated after the en banc hearing was granted.

The panel of judges appeared divided along party lines on whether the structure of the CFPB is constitutional, according to Reuters. If the court upholds the initial ruling that the “for cause” provisions in the Dodd-Frank Act related to the removal of the CFPB’s director is unconstitutional, the president, at his discretion, will have the authority to remove the director.

“Scaling back the bureau’s authority in this manner would go a long way in ensuring that appropriate checks and balances are in place to reign in CFPB actions that might significantly harm the financial services industry and limit the types of financial products and services available to consumers,” says Amy Ross Lauck, partner, payment systems and consumer financial services, Lindquist & Vennum LLP.

Hanging in the Balance

After the hearing, the court’s decision probably won’t be issued until late-summer or early fall, according to Joseph R. Rodriguez, partner, Davis Wright Tremaine LLP. The panel of judges has a majority of appointees who are Democrats, which could favor the CFPB’s position, he tells Paybefore.

If the court rules in favor of the CFPB, PHH Corp. can appeal to the Supreme Court. If the en banc panel rules in favor of PHH Corp., the CFPB can appeal, but it wouldn’t be easy. In fact, it would be highly unlikely because the agency would need approval from the Department of Justice, according to Rodriguez. The DOJ in March filed an amicus brief in the case, arguing that the president should have the authority to fire the head of the CFPB for any reason. In April, the DOJ asked the court for 10 minutes to present its own oral arguments in the case, saying it doesn’t align fully with either side.

While the constitutionality of the CFPB’s structure is making most of the headlines, the lawsuit includes other substantive issues to be decided: The CFPB’s statute of limitations on enforcement actions and the bureau’s enforcement action in 2015 against PHH Corp., alleging kickbacks in exchange for real estate referrals, which is in violation of the Real Estate Settlement Procedures Act (RESPA).

“The three-judge panel decision strongly rebuked the CFPB’s position that it had essentially unlimited time to bring enforcement actions,” says Rodriguez. And the CFPB’s enforcement action regarding RESPA “really changed the game regarding compliance with RESPA, making it much more difficult to comply with the requirements of the law,” he adds.

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