WASHINGTON–The District of Columbia U.S. Circuit Court of Appeals yesterday heard arguments over whether the Consumer Financial Protection Bureau is constitutional. In advance of the hearing, the three judges—all Republican appointees—signaled it had serious questions about that constitutionality of the CFPB.
The case is an appeal by mortgage lender PHH Corp. of a $109-million disgorgement decision that the CFPB handed down in June of 2015. Originally, the administrative law judge who oversaw the CFPB’s case against PHH had recommended just a $6 million disgorgement, but CFPB Director Richard Cordray increased the amount saying he believed that PHH had engaged in illegal kickbacks under the Real Estate Settlement Procedures Act when it demanded that mortgage insurers buy reinsurance from PHH’s in-house reinsurance company.
Following that decision, PHH began raising a number of issues and also requested a stay of the CFPB’s final decision in order to not have to put up the $109 million while it pursued the appeal.
Included as part of PHH’s appeal is that the CFPB structure violates Article II of the Constitution, because the director does not directly report to the president, the director can only be removed for cause, and it also does not report directly to Congress, as the agency is funded through the Fed.
A motions panel of the D.C. Circuit earlier agreed to a stay of the PHH disgorgement.
The CFPB has responded by saying there is precedent for its structure, including creation of the FTC.
PHH is being represented by Theodore (Ted) Olson of Gibson Dunn, who while U.S. Solicitor General, defended NCUA before the Supreme Court during the fight over the agency’s field of membership rules.
In their order prior to the hearing, the three judges told attorneys for both sides to be prepared to speak to the issue of agencies other than the CFPB that are headed by a single individual, whether the one-director structure violates Article II as interpreted in a separate case, and, if so, what an appropriate solution to the breach would be.