Breaking News: ACA International Files Legal Brief in Pivotal D.C. Circuit Case Challenging CFPB’s Structure and Power Under Dodd-Frank


ACA International filed a “friend of the court” (amicus) brief today with the U. S Court of Appeals for the District of Columbia Circuit in the closely watched appeals court case, PHH Corp., et al. v. Consumer Financial Protection Bureau, No. 15-01177 (D.C. Cir., filed June 19, 2015).  The PHH Corp. case calls into question the constitutionality of the CFPB’s single-director-removable-only-for-cause leadership structure and authority.  The full slate of judges in the D.C. Circuit will take a fresh look at the appellate court’s prior decision that found the agency’s unusual independence to be unconstitutional, setting the stage for a legal fight that carries significant implications for the future of the agency in the Trump administration.

“The current structure of the CFPB, and the questions surrounding its accountability and oversight, have led to confusion in the financial services industry, and we continue to be concerned about problems with regulatory excess that stifles growth among our small businesses,” said ACA International CEO Pat Morris.  “Given the uncertainty and questions created by the CFPB, we have today - as the voice for the debt collection industry that has been heavily regulated by the CFPB - submitted an amicus brief to share with the court our unique and direct perspective on why we believe the Bureau’s powers must be reined in within constitutional bounds to ensure accountability and transparency.” 

A decision by the full panel of D.C. Circuit Court judges in the case may not only clarify the CFPB’s reach in interpreting statutes and doling out enforcement actions, but it may also ultimately determine the very structure of the Bureau and the fate of its director. 

In its amicus brief, ACA argues that “[t]he Bureau’s structure and function —wielding power over a broad swath of Americans’ lives, concentrating power in the hands of a single Director, insulated from democratic accountability —is ripe for the arbitrary and unrestrained exercise of power in disregard for due process, and for the constitutional rights of the objects upon whom that power is exercised.”  ACA contends that the CFPB’s “concentration of enormous executive power in a single, unaccountable, unchecked director” results in four key profound unconstitutional consequences: 

  1. The Bureau’s structure amounts to an unconstitutional delegation of legislative power to a single individual;
  2. The Bureau’s insulation from Presidential and Congressional oversight deprives its work of democratic accountability;
  3. The Bureau’s unique funding mechanism, in addition to being insulated from accountability, also raises an unusual conflict of interest; and
  4. The Bureau’s conduct in practice has evaded traditional, transparent mechanisms of administrative procedure in favor of back-door policymaking through litigation and enforcement, and regulated actors - like those who make up ACA’s membership - should not learn that the ground rules have changed only when they are facing an enforcement action that the Bureau has brought. 

As ACA reported previously, the PHH Corp. case represents the first serious challenge to the constitutionality of the Bureau’s structure and the first-ever challenge to the CFPB’s exercise of its administrative enforcement powers. 

The battle between PHH and the CFPB stems from a massive $100-million penalty.  In early 2014, the CFPB issued a Notice of Charges alleging that PHH initiated a kickback scheme, in which PHH gave referrals for mortgage insurance in exchange for mortgage reinsurance contracts with its subsidiary.  An administrative law judge ordered a $6.4 million disgorgement penalty against PHH.  That decision was affirmed on appeal in June 2015 when CFPB Director Richard Cordray concluded that PHH engaged in illegal kickbacks in violation of the Real Estate Settlement Procedures Act (RESPA).  He increased the initial penalty to $109 million. 

Not persuaded by the requirement that it first pass through Director Cordray’s office before exercising its right to judicial review nor the dramatic increase in the fine that resulted, PHH appealed to the D.C. Circuit Court.  On October 11, 2016, a three-judge panel of the court ruled that the CFPB’s structure was constitutionally flawed and that its director should be removable at the will of the president.

The CFPB fought that ruling, and asked the entire D.C. Circuit to hear the case rather than just the three judges who previously ruled.  On February 16, 2017, the appellate court granted the CFPB’s request for rehearing.  In doing so, the court ordered the panel’s October 2016 decision vacated, giving the CFPB another shot at defending its single-director structure. 

Briefing in the case is scheduled to conclude by April 10, and the D.C. Circuit is scheduled to hear oral argument on May 24. 

ACA will continue to follow the PHH Corp. case and will keep its members posted on any additional new developments. 

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