What happens now that the CFPB appealed its “unconstitutional” ruling?

Compass Point on the next steps in the PHH legal battle

As expected, the Consumer Financial Protection Bureau last week appealed the U.S. Court of Appeals for the District of Columbia Circuit ruling that declared the agency’s leadership structure unconstitutional and vacated a $103 million increase to a $6 million fine levied against PHH.

The original D.C. Court of Appeals ruling was handed down by three of the judges on the court, but the CFPB on Friday asked for an en banc review, meaning the agency is asking for the entire court to rehear the case.

So what happens now? First, the wait begins for the court to determine whether it wants to hear the case en banc or not. But just how long is that wait going to be? And what does it mean in the interim?

In a new report published Monday, Compass Point Research & Trading analysts Isaac Boltansky and Fred Small consider those questions and others relating to the PHH-CFPB case.

Boltansky and Small say that they expect a decision on whether to the full court plans to rehear the case to come in early 2017. Until then, it’s business as usual for the CFPB.

The analysts say that the odds “slightly favor” the court granting the CFPB’s request, but that caution that the D.C. Circuit is not easily convinced to hear a case en banc.

“The D.C. Circuit grants very few en banc rehearings,” Boltansky and Small write.  “The court’s rules state that en banc hearings are ‘not favored’ and will generally not be granted unless ‘consideration is necessary to secure or maintain uniformity of the court's decisions’ or ‘the proceeding involves a question of exceptional importance.’”

Despite the analysts’ view of the D.C. Circuit’s past history, they still view the CFPB’s chances of getting the case heard by the court at better than 50-50.

“Given the composition of the court, and our view that the issues in question clear the ‘exceptional importance’ threshold, we believe the odds of the CFPB’s en banc rehearing petition being granted are (approximately) 60%,” Boltansky and Small write. “We caution, however, that the court’s procedural disdain for en banc rehearings coupled with the politically precarious nature of this issue could lead to a denial.”

Boltansky and Small say that they expect that the full court will make its decision to hear the case or not in January 2017, based on the timing of similar requests.

If the full court denies the CFPB’s request, then the agency has 90 days to petition the Supreme Court to hear its case.

But the analysts note that even if the Court of Appeals (or the Supreme Court for that matter) rule in favor of the CFPB, the agency most likely won’t be safe from Republican efforts to defang it.

According to the analysts, the best bet for structural changes to the CFPB remains legislation, most likely coming in the second half of 2017.

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