Politics & MoneyMortgage

Federal court tosses challenge to CFPB Director Cordray’s recess appointment

But other questions of agency's constitutionality linger

A federal judge tossed out part of a lawsuit that challenged the makeup, leadership structure and authority of the Consumer Financial Protection Bureau, finding that the Obama Administration was within its allowable rights when it named Richard Cordray as the CFPB’s director while Congress was in recess.

The decision stems from a lawsuit brought by State National Bank of Big Spring, Texas, which filed suit against the federal government in 2012, claiming that the CFPB’s “unprecedented, unchecked power” violates the Constitution’s separation of powers.

Part of that suit challenged President Obama's in-recess appointment of Cordray, stating that it violated the appointments clause of the Constitution since it was an appointment made without the Senate's consent even though the Senate was technically still in session.

According to a report from Bloomberg, U.S. District Judge Ellen Segal Huvelle threw out the challenge to Corday’s appointment earlier this week, but decided to hold off on making decisions about the larger constitutional challenges until a Federal Court of Appeals rules on similar challenges brought by PHH.

PHH also questioned the authority of the CFPB in regard to a $109.2 million fine levied against PHH by Cordray for PHH's alleged violations of the Real Estate Settlement Procedures Act. 

Cordray said that PHH should be punished for every time it accepted a kickback payment on or before July 21, 2008, which went far beyond Administrative Law Judge Cameron Elliot’s ruling, which limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008 — a mere $6.4 million penalty.

The Court of Appeals is still considering the PHH case, with one analyst projecting a 75% chance that the CFPB's $103 million increase to the original PHH fine will be “substantially reduced or vacated entirely.” 

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