Full Panel D.C. Circuit Court Holds Oral Argument In Appeal Over Constitutionality of CFPB


5/25/2017 1:12:00 AM

The panel of judges focused their questions almost entirely on the constitutional issues at stake in the PHH Corp. et al v. CFPB case, with very little time devoted to the statutory holdings from the October 2016 panel decision.

CFPBNewsIndustry Advancement Program

Taking another look at an October 2016 decision that ruled the structure of the Consumer Financial Protection Bureau (CFPB) unconstitutional, the full slate of judges on the federal appeals court for the District of Columbia heard the much-anticipated oral argument yesterday in PHH Corp. v. CFPB.  The PHH Corp. case carries broad implications for the future of the CFPB in the era of the Trump administration.  Maria Wolvin, ACA International’s vice president and senior counsel of regulatory affairs, attended the oral argument.

The Department of Justice (DOJ), whose position notably shifted under President Donald Trump to side with the three-judge panel’s October decision, successfully requested to have its own allotted time for argument.  As a result, PHH, the DOJ, and the CFPB each had individual time for argument.

While the panel decision addressed both constitutional and statutory issues, Wednesday’s oral argument focused almost exclusively on questions concerning presidential authority and the constitutionality of the CFPB.  In particular, the judges questioned how seriously the CFPB, in its current form, limits the president’s power to faithfully execute the laws, as well as whether the D.C. Circuit Court has the authority to rule in favor of PHH on the constitutional issues in light of Supreme Court precedent. 

PHH, through former solicitor general Ted Olson, argued that Article II cannot be clearer and that Congress cannot intrude on the president’s power to control the executive agency.  Describing the CFPB as “manifestly unconstitutional,” PHH asserted that the combination of the CFPB’s unique features—including its single-director structure, its clear executive functions, and its lack of accountability—all have a significant impact on diminishing presidential power and demonstrate why the PHH case is vastly different than the other Supreme Court cases cited by the judges.  In its closing, PHH also urged the panel of judges to reinstate the statutory holdings from the October 2016 panel opinion, noting their importance to industry. 

For its part, the DOJ described the CFPB as a “quintessential executive agency” and that a “for cause” only removal restriction for the director of the CFPB is an unwarranted limitation on the president’s executive power.  The DOJ also argued that Supreme Court precedent does not bind the D.C. Circuit from upholding the panel decision because that rationale does not apply given the differences in the CFPB’s structure.  The DOJ went on to assert that nothing about the CFPB demonstrates the need for any kind of exception like the narrow one supported previously by the Supreme Court. 

The CFPB countered by arguing the relevant question is not whether the president’s power is diminished by the CFPB, but whether the president retains “sufficient” authority to faithfully execute the laws.  To this, the CFPB asserted that as long as the president can remove an official “for cause,” that is sufficient.  The CFPB acknowledged, however, that after the director’s five-year term expires, he is removable by the president at will.   The CFPB further stated that a president will have an 80 percent chance of replacing the CFPB director under the current structure and that a president exercises no less control over a single-director agency than he does over a multi-member commission.  In terms of the statutory issues, the CFPB briefly argued that the CFPB is covered by the statute of limitations in the judicial code and that a party could have known that the conduct at issue in the PHH case was unlawful by looking at the statute itself.

During the oral arguments, Judge Kavanaugh, author of the majority opinion in the October 2016 panel ruling, took an active role in framing the issues and posing several questions.  Judge Kavanaugh pointed out that although agencies historically turn over immediately or pretty quickly to the party of the president, that transition is not true with the CFPB and this seems to result in a significant diminishment of presidential power.  He noted that under the current structure, President Trump could appoint a new CFPB director in July 2018.  However, if the 2020 presidential election produces a new president from a different party, that new president could be stuck with a CFPB director who could potentially be at odds with his or her platform for three years.  Judge Kavanaugh described this result as “crazy” in terms of history, constitutional structure, presidential power, and common sense.

Finally, although the parties were asked to address in their briefs the potential effect of a decision in Lucia v. SEC, which raises the issue of the constitutionality of using administrative law judges that are not appointed by the president or the federal courts, this issue did not come up in oral argument.  Notably, however, Lucia v. SEC was argued in front of the D.C. Circuit immediately before the PHH Corp. case.   

As ACA reported previously, ACA International filed an amicus (friend of the court) brief on March 10, 2017, in the PHH Corp. case to share with the appellate court its unique and direct perspective on why it believes the bureau’s powers must be reined in within constitutional bounds to ensure accountability and transparency.  In its brief, ACA argued 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.” 

Although a decision by the D.C. Circuit could come at any time, it is not expected until the first part of 2018.  For those interested in hearing the arguments first hand, an audio recording of the arguments is available here

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

If you missed any of the articles previously published in ACA Daily that provided more detailed information about Industry Advancement Program supported cases, like the PHH Corp. case, you can always see the archived articles on the Industry Advancement Program website. Watch for updates when decisions are issued in these cases and learn more about new cases supported by the Industry Advancement Program in the future by reading ACA Daily and logging onto the Industry Advancement Program website throughout the year. 

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