Can this small Texas bank jump in on PHH’s fight with the CFPB?

State National Bank of Big Spring v. Lew

Even though PHH’s battle with the Consumer Financial Protection Bureau takes up the majority of the discussion around the fate of the bureau, it’s not the only entity fighting against the independent, regulatory agency.

Battling alongside PHH is State National Bank of Big Spring, Texas. And while it’s a lesser-known case, it harbors a similar grudge against the CFPB, with a lot of its fate resting in the outcome of the PHH case.

When the U.S. Court of Appeals for the District of Columbia Circuit ruled last week in favor of the CFPB to rehear the case en banc, it opted to not address the case of State National Bank of Big Spring v. Lew, leaving the case, once again, in limbo.

Back in 2012, State National Bank filed suit against the federal government, claiming that the CFPB’s “unprecedented, unchecked power” violates the Constitution’s separation of powers.

The stance fits right in with the court’s decisions in October 2016 in the PHH case that the CFPB’s current structure allows the director to wield far too much power, more than any other agency in the government.

However, the State National Bank case predates all of this. Nearly three years prior in August 2013, after 11 states had joined State National Bank’s lawsuit, it 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.

The group didn’t give up and appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit, eventually winning the appeal in July 2015 when the court ruled the case could move forward.

This is about where the State National Bank case starts to go into limbo and the PHH case starts to begin.

Around the same time in 2015, the CFPB fined PHH $109 million for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks. The fine was initially slated to only be $6 million.

PHH challenged CFPB Director Richard Cordray’s authority to levy the additional fine and the constitutionality of the CFPB, and after much deliberation, the court agreed with PHH on all counts.

The CFPB fought that ruling, asking the court to rehear the case en banc, meaning that it wanted the entire court to hear the case, rather than the three judges who ruled on the case in October, which the court ended up ruling in favor of.

As all of this is happening with PHH, the only update to come out on the State National Bank base is that 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.

The judge decided to hold off on making decisions about the rest of the case until the PHH case was finalized.

The initial win for PHH was great news for State National Bank, but after the CFPB asked the court to rehear the case en banc, and won, it’s fate became questionable again.

According to a blog post from Ballard Spahr by Barbara Mishkin, shortly before the court ruled in favor of the CFPB to rehear the case in banc, the plaintiffs in State National Bank of Big Spring, Texas v. Lew filed a “Motion To Intervene In Any En Banc Proceeding That May Be Granted” in the PHH case. 

 “In their motion to intervene, the plaintiffs argue that if the D.C. Circuit grants the CFPB’s petition for rehearing en banc but decides the case on RESPA grounds, their ‘constitutional claims will be left unresolved, and the district court will be left without binding guidance from this Court as to how the constitutional question should be answered,’” the blog said.  

“The plaintiffs argue that they meet the standard for intervention of right, which includes a requirement that no party to the action can adequately protect their interests.  According to the plaintiffs, they cannot rely on PHH to defend the panel’s constitutionality holding as vigorously as the plaintiffs would,” it continued.

But when the ruling came out to hear the case en banc, there was no update given on the motion filed by State National bank.

While State National Bank may be relatively small, this fight stands to grow big, just on the basis of its David versus Goliath superlative. Will State National Bank rest its fate on PHH or be permitted to help fight in court? Only time will tell, for now.

In the meantime, State National Bank must continue to wait and see how the higher courts play out their uncertain fate against the nation’s largest consumer-products regulator, itself an agency with a future in the balance.

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