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Politics & MoneyInvestmentsMortgageReal Estate

PHH urges Court of Appeals to kill CFPB

Argues CFPB constitutional issues go well beyond director’s authority

PHH wants the full Court of Appeals for the District of Columbia Circuit to do more than simply declare the leadership structure of the Consumer Financial Protection Bureau unconstitutional; it wants the Court of Appeals to kill the CFPB altogether.

PHH declares its opposition to the continued existence of the CFPB in a new legal filing in PHH’s ongoing case against the financial regulator.

Last month, the Court of Appeals for the District of Columbia Circuit ruled in favor of the CFPB, stating that it would rehear a case involving PHH and the CFPB.

The case began with the CFPB, specifically CFPB Director Richard Cordray, adding a $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.

PHH fought the fine, arguing that Cordray did not have the authority to increase the fine. The case made its way to the Court of Appeals, which ruled in October that the CFPB’s leadership structure was unconstitutional in a 2-1 vote. The ruling also vacated the additional $100 million fine against PHH.

The CFPB fought the 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.

And last month, the full Court of Appeals ruled that it would rehear the case, giving the CFPB the opportunity to defend its constitutionality.

But it appears that it will do so without the assistance or support of the rest of the government, as a recent filing from the Solicitor General appears to indicate that the government now supports PHH.

And while the CFPB and PHH prepare for the hearing before the full court in May, PHH last week submitted its opening en banc brief, laying out its case for the full court.

In the filing, PHH declares that the CFPB’s constitutional issues extend far beyond simply whether the CFPB director can be removed by the president at will or for cause only.

“In light of the many constitutional problems that plague the CFPB’s structure, the appropriate remedy is to strike down the CFPB in its entirety,” PHH argues in its brief.

PHH continues:

In creating the Consumer Financial Protection Bureau, Congress placed massive, unchecked federal power in the hands of a single, unaccountable Director. The CFPB is structured so that the Director alone rules over large swaths of the field of consumer finance, subject to virtually no restraints from the representative branches: For example, Congress both strictly limited the President’s ability to remove the Director and surrendered its own power of the purse, allowing the Director to set his own budget and demand funds as he sees fit. Thus, the Director runs a parallel government unto himself. He need not answer to Congress or the President. That structure cannot be reconciled with the Constitution’s dual promises of democratic government and separated powers.

PHH argues that the structure of the CFPB is “unlike any that the Supreme Court has ever condoned, in that the CFPB director serves a five-year term and cannot be removed by the president unless it is for cause.

PHH continues:

He (the CFPB director) serves a five-year term that cannot be cut short if the President wants a replacement and that can be extended indefinitely if the Senate does not confirm a replacement. The result hamstrings, and potentially eliminates altogether, the President’s influence over this powerful agency. The single- Director structure also exacerbates the CFPB’s intrusion on individual liberty by removing the internal checks and balances present in multi-member commissions. The self-funding budget authority removes the external check that Congress ordinarily exercises through the power of the purse. And unlike the independent counsel in Morrison v. Olson, 487 U.S. 654 (1988), the Director’s jurisdiction is broad, his tenure is potentially unlimited, and he has vast policymaking and adjudicative authority.

Therefore, PHH argues that the only remedy for the CFPB’s multiple issues is the complete dissolution of the agency.

“Severance of the CFPB Director’s removal restrictions is not an adequate or appropriate remedy because it would solve only one of the CFPB’s multiple structural problems while creating a new agency structure that Congress likely did not intend,” PHH argues. “Moreover, unless this Court vacates the CFPB’s Order on some other ground without any remand, the separation-of-powers question cannot be avoided: There can be no remand to an unconstitutional agency.”

PHH continues:

The Director’s multiple and grave legal errors in this case are exactly what one would expect from an unaccountable agency headed by a single officer wielding vast yet unrestrained government power. The Director invented a new interpretation of the Real Estate Settlement Procedures Act (“RESPA”) that prohibits certain mortgage insurance arrangements that Congress unambiguously chose to allow. He determined that CFPB administrative enforcement actions are subject to no limitations period, despite RESPA’s express three-year time bar. And he unilaterally imposed $109 million in retroactive liability on PHH for conduct that the CFPB’s predecessor, the Department of Housing and Urban Development (“HUD”), had told the real-estate industry—repeatedly, over a period of decades—was lawful.

PHH argues that the panel’s previous ruling on these issues are “plainly correct,” adding that there is “no basis” for revisiting the issues.

The two sides are due in court on May 24, 2017 for the full hearing.

Click here to read PHH’s filing.

(h/t Law360 and Bloomberg BNA)

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