D.C. Court revisits case against CFPB

The Consumer Financial Protection Bureau has been closely scrutinized since its inception as part of the 2010 Dodd-Frank Act. Advocates say the government agency protects consumers from unfair lending and predatory credit practices. Opponents claim the agency is too powerful and autonomous. Both sides had their day in court May 24, 2017, when the U.S. Court of Appeals for the D.C. Circuit reopened PHH v. CFPB, a legal action challenging the CFPB’s constitutionality and powers.

As reported March 13, 2017, in issue 17:03:01 of The Green Sheet, PHH Corp. and concerned parties sued the CFPB in April 2016. Plaintiff alleged the bureau belonged to a group of government agencies such as the Federal Communications Commission that “constitute a headless fourth branch of government." Mortgage provider PHH Corp. was also contesting a $109 million penalty imposed by the CFPB for deceptive practices; PHH called the penalty executive overreach.

Presidents, precedents

Circuit Court Judges Kavanaugh, Randolph and Henderson ruled in favor of plaintiffs Oct. 11, 2016, but agreed to reconsider the ruling in February 2017, following the CFPB’s appeal. The original opinion was based on a series of historical precedents set by previous administrations that stipulated levels of authority in legislative, executive and judicial branches of government.

Arguments invoked the following Supreme Court cases concerning separation of powers:

• The 1933 Humphrey’s Executor decision: Humphrey, a Federal Trade Commissioner, refused to resign when President Franklin Delano Roosevelt fired him and then died before the case was tried. The Supreme Court unanimously upheld the FTC Act, which protected Humphrey from being fired for any reason other than just cause. Humphrey’s opposition to FDR’s New Deal was not considered just cause, the justices ruled.

• The 2010 Free Enterprise Fund v. Public Company Accounting Oversight Board: When the PCAOB, a regulatory agency created by the Sarbanes-Oxley Act of 2002, questioned an accounting firm’s auditing practices, the company and its trade association, the Free Enterprise Fund, challenged the PCAOB’s constitutionality. The plaintiffs claimed PCAOB members, appointed by the Securities Exchange Commission, are insulated from presidential control. The Supreme Court ruled in favor of the plaintiffs June 28, 2010, citing the PCAOB violated the Appointments Clause of the U.S. Constitution, which mandates that appointments be made by presidents or department heads.

Joseph Lynyak III, Partner at international law firm Dorsey & Whitney, observed that numerous questions and arguments in the reopened case focused on the Humphrey’s Executor and the Free Enterprise decisions. Plaintiff PHH “argued strongly that the degree of independence given to the CFPB falls far outside of the limits announced in Humphrey’s Executor and approved of in the Free Enterprise decision," he stated.

Divided political interests

As an eleven-judge panel reviews the reopened case against the CFPB, advocates cite the agency’s accomplishments while critics question its structure, legitimacy and authority. CFPB spokesperson Sam Gifford said the agency is unavailable for comment during active litigation.

PHH continues to assert the CFPB’s authority violates separation of power. “Because the CFPB is an independent agency headed by a single Director and not by a multi-member commission, the Director of the CFPB possesses more unilateral authority – that is, authority to take action on one’s own, subject to no check – than any single commissioner or board member in any other independent agency in the U.S. Government,” the company stated.

Rachel Weintraub, Legislative Director and General Counsel at the Consumer Federation of America disagreed, stating, “The CFPB has returned $12 billion to 29 million consumers. The American people need the CFPB to stand up for them. This case is about pulling the agency down.”

Pamela Banks, Senior Policy Counsel for Consumers Union, Consumer Reports, added, “The CFPB director needs to be independent from potential political pressure in order to be able to stand up for protecting the interests of consumers against the immense power of the financial industry. The structure designed by Congress ensures that the director will be both independent and accountable.”

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