On Feb. 16, 2017, the U.S. Court of Appeals for the D.C. Circuit granted the request for en banc review by the Consumer Financial Protection Bureau (CFPB) in the PHH v. CFPB matter.[1]  The order vacates the prior judgment by a three-judge panel that the CFPB’s structure was constitutionally infirm, and which remedied that infirmity by making the CFPB’s director removable at the discretion of the president.  Accordingly, until the full Court issues its ruling, the CFPB director can only be removed for cause.

The Court directed the parties to brief three specific issues, each of which relates to constitutional questions:

1) Is the CFPB’s structure as a single-director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

2) May the court appropriately avoid deciding that constitutional question given the panel’s ruling on the statutory issues in this case?

3) If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

Question 1 directly addresses the core ruling of the three-judge panel – that the single-director structure of the CFPB was unconstitutional and that the appropriate remedy was to make the CFPB director removable at the discretion of the president, similar to other executive agencies.  As this was the core ruling on appeal, the fact that the Court is seeking briefing on this topic is entirely expected.

Question 2 addresses a point raised by Judge Henderson in her separate opinion, which concurred in the outcome but which dissented on the Constitutional questions.  Judge Henderson’s opinion was that there was no reason for the Court to even reach the question of whether the CFPB’s structure was constitutional.  As the Court was already granting PHH complete relief in ruling in its favor on the interpretation of RESPA, Judge Henderson argued that there was no reason for the Court to reach the constitutional questions.  If the full court were to agree with Judge Henderson’s logic, then the ruling for PHH would be upheld, but the challenge to the CFPB’s structure would not be addressed by the Court.

Question 3 also addresses a point raised by a concurring opinion, in this case that of Judge Randolph.  Judge Randolph agreed with the ruling against the CFPB, but on the independent grounds that the administrative law judge (ALJ) who issued the initial ruling against PHH was an “inferior officer” under the meaning of the Appointments Clause of the Constitution,[2] which requires that such officers be appointed by the president, courts of law, or the heads of departments.  Because the ALJ was not so appointed, but was instead assigned by the SEC’s chief ALJ pursuant to an agreement between the CFPB and the SEC, Judge Randolph would have declared the proceeding against PHH unconstitutional for that separate rationale.  This question of the Constitutional status of ALJ’s is clearly an area of interest to the court, given that the Court granted en banc rehearing on the same day on the Lucia v. SEC case raising similar questions regarding the Appointments Clause of the Constitution.

It is worth noting that the Court did not specifically request briefing on the propriety of the director’s interpretation of RESPA or the relevant statute of limitations.  While nothing precludes the full Court from reconsidering that issue, the fact that no briefing was requested on it, along with the fact that all three judges in the previous panel decision agreed to overturn the director’s ruling, suggests an uphill climb for the bureau as to the merits of its position on RESPA.

The court will hear oral argument on May 24, 2017.

[1]https://www.cadc.uscourts.gov/internet/opinions.nsf/5D0253C4E25B93FB852580C9005F3AE1/$file/15-1177-1661681.pdf

[2] U.S. Const. Art. II, §2, cl. 2.

Print:
EmailTweetLikeLinkedIn
Photo of Gil Rudolph Gil Rudolph

Gil Rudolph is Co-Chair of the firm’s Financial Regulatory and Compliance Practice. Gil focuses his practice on the representation of finance companies, banks, mortgage originators and servicers, education lenders, retail installment transaction financers and other consumer financial service providers in regulatory and litigation…

Gil Rudolph is Co-Chair of the firm’s Financial Regulatory and Compliance Practice. Gil focuses his practice on the representation of finance companies, banks, mortgage originators and servicers, education lenders, retail installment transaction financers and other consumer financial service providers in regulatory and litigation matters. Gil also represents various alternative financial service providers, including small dollar/short term lenders, check cashers, pawn and auto title lenders. He additionally represents various participants in the credit, debit, and prepaid card issuance and processing industries.

Photo of Andrew S. Wein Andrew S. Wein

Andrew S. Wein is a regulatory, litigation, and corporate attorney who represents financial services clients. His national practice focuses primarily on mortgage companies and other consumer financial institutions, assisting them with both litigation and regulatory compliance. Andrew handles litigation and regulatory issues arising…

Andrew S. Wein is a regulatory, litigation, and corporate attorney who represents financial services clients. His national practice focuses primarily on mortgage companies and other consumer financial institutions, assisting them with both litigation and regulatory compliance. Andrew handles litigation and regulatory issues arising out of federal and state consumer protection statutes, including the Real Estate Settlement Procedures Act, Truth in Lending Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Telephone Consumer Protection Act, Home Mortgage Disclosure Act, Secure and Fair Enforcement for Mortgage Licensing Act, and the Home Affordable Modification Program.

On the regulatory side, Andrew’s experience includes proceedings before state and federal agencies, including the Consumer Financial Protection Bureau, the U.S. Department of Housing and Urban Development, and the New York Department of Financial Services. In addition, Andrew has deep experience with all facets of the mortgage industry, including the licensing of mortgage companies and their affiliates, examinations by state and federal agencies, loan repurchase disputes, pooling and servicing agreements, financing agreements, and various other originations and servicing transactions.