Politics & MoneyMortgage

Will PHH victory undermine CFPB authority in similar court battle?

This is the case no one is talking about...yet

PHH’s landmark victory against the Consumer Financial Protection Bureau’s leadership structure opens the door for another, lesser-known case of a small Texas bank that also challenges the bureau’s authority.  

On Tuesday, the United States Court of Appeals for the District of Columbia Circuit ruled the structure of the CFPB unconstitutional and vacated a $103 million fine against PHH.

In a unanimous decision, the court ruled that the CFPB’s current structure allows the director to wield far too much power, more than any other agency in the government.

As the impact of the decision continues to filter through the industry, there is one court case that took a major step forward thanks to the court’s decision: State National Bank of Big Spring v. Lew.

State National Bank of Big Spring, Texas, which was cited in the PHH decision, filed suit against the federal government in 2012, claiming that the CFPB’s “unprecedented, unchecked power” violates the Constitution’s separation of powers.

In August 2013, after 11 states had joined State National Bank’s lawsuit, the case was tossed by a federal judge, who ruled that the bank did not have standing to sue, and also said that the case was no longer ripe – meaning the suit was not filed quickly enough.

State National and the 11 states, which include Oklahoma, South Carolina, Georgia, Michigan, Texas and others, appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit.

And in July 2015, the Court of Appeals ruled in State National’s favor, stating the bank does have standing to challenge the CFPB’s constitutionality and ruled that the case can move forward.

The court ruled that the bank is “not a mere outsider” challenging the CFPB, stating that the bank is an entity that falls under the CFPB’s regulatory authority, therefore it is well within its rights to challenge the CFPB’s authority.

State National’s case was also joined by the 60 Plus Association, a nonprofit that represents the interests of senior citizens, and the Competitive Enterprise Institute, which advocates for limited government.

The court case had not made too much progress aside from a decision back in July when a federal judge tossed out a part of the lawsuit that 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.

However, U.S. District Judge Ellen Segal Huvelle held off on making decisions about the rest of the case until the PHH case was finalized since they had similar challenges.

Now with the PHH ruling finalized, CEI General Counsel Sam Kazman said that the ruling opens the door for CEI’s district court case, State National Bank of Big Spring v. Lew, to move forward, challenging the constitutionality of other aspects of CFPB.

“We realize that having any act of Congress declared unconstitutional is an uphill battle,” said Kazman. “Yesterday’s ruling is tremendously encouraging and demonstrates that the agency has some very fundamental problems.”

Kazman noted that he hopes the court will have a decision on the State National Bank case relatively soon. 

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