Plaintiffs in BCFP Constitutionality Case File Petition for Consideration with U.S. Supreme Court

Following the decision in the landmark PHH Corp. v. CFPB case, groups with similar challenges to the bureau’s leadership structure and funding appropriations are asking for the Supreme Court to take on the issue.

9/12/2018 9:00 AM

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Plaintiffs in BCFP Constitutionality Case File Petition for Consideration with U.S. Supreme Court

Three groups, including State National Bank of Big Spring, Texas, are asking the U.S. Supreme Court to consider a lawsuit challenging the constitutionality of the Bureau of Consumer Financial Protection’s leadership structure.

Following the outcome of PHH Corporation v. Consumer Financial Protection Bureau, State National Bank is joining plaintiffs Competitive Enterprise Institute (CEI), a nonprofit public policy organization, and 60 Plus Association, a seniors’ advocacy group, in filing a petition with the court to hear the case.

The bank is not unfamiliar with this issue as it previously sought a declaration that the establishment of the BCFP as well as the appointment of former director Richard Cordray were unconstitutional, ACA International previously reported. State National Bank filed a motion for summary judgment with the U.S. District Court for the District of Columbia in November 2015.

However in June 2016, U.S. District Court Judge Ellen Segal Huvelle in Washington, D.C. delayed action while the U.S. Court of Appeals for the District of Columbia Circuit considered PHH Corp v. CFPB.

(Editor’s Note: In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, ACA International refers to the CFPB as the BCFP, or the Bureau of Consumer Financial Protection.)

John Berlau, a senior fellow at CEI who was one of the original plaintiffs in the State National Bank case, said in a news release that the organization supports President Donald Trump’s nominee Kathy Kraninger as the next BCFP director, but contests the bureau’s leadership structure.

“... We still believe that Kraninger—or any other sole director of the bureau—must operate within constitutional constraints,” Berlau said in the news release. “These include the ability to be checked by presidential removal and by the congressional appropriations process. Currently the bureau receives funding automatically from the Federal Reserve, depriving Congress of the opportunity to exercise meaningful oversight through the budget process. That is why we [are]...pressing on with this important lawsuit.”

The main arguments in State National Bank and CEI’s case, in addition to the constitutionality of the bureau’s structure, also focused on the lack of congressional appropriations for the bureau’s budget.

Actions in PHH Corp. v. CFPB to Date

Action in the PHH Corp. v. CFPB case this year once again raised the issue of the bureau’s leadership structure.

In January, the United States Court of Appeals for the District of Columbia Circuit handed down its highly-anticipated decision in PHH Corp. v. CFPB, known as the landmark case challenging the constitutionality of the bureau’s authority, ACA International previously reported.

The 250-page en banc opinion issued by the full bench of the D.C. Circuit Court says the agency’s single-director structure is indeed constitutional and that its director can only be fired by the president for “inefficiency, neglect of duty, or malfeasance in office.” The 7-3 ruling overturns, in part, a 2-1 ruling in 2016 by a three-judge panel of the same court, and notably has an impact on the administration’s policy goals to continue to roll back financial regulations and defang the bureau.

However, the appellate court’s Jan. 31 decision was not a total loss for PHH Corp. and other companies facing BCFP investigations. While the D.C. Circuit Court upheld the bureau’s structure, it tossed out a $109 million penalty that the BCFP had issued to PHH Corp. and returned the case to the bureau for further proceedings based on the appellate court’s legal guidance

ACA International filed an amicus (friend of the court) brief 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.”

Discussion of the PHH Corp. v. CFPB case also recently surfaced in Senate Judiciary Committee nomination hearings for Brett Kavanaugh, President Donald Trump’s nominee for the U.S. Supreme Court. Members of the committee discussed the case in relation to questions on Kavanaugh’s views about leadership at independent federal agencies such as the BCFP.

Notably, Kavanaugh authored the D.C. Circuit Court of Appeals majority panel opinion in 2016 declaring the bureau unconstitutional in PHH Corp v. CFPB.

During the hearings, Kavanaugh reiterated the importance of the precedent in Humphrey's Executor v. United States, a 1935 case that centered on the president’s authority to remove executive leaders of agencies created by Congress without the permission of legislators.

Now, since the ruling in PHH Corp. v. CFPB, the U.S. District Court for the District of Columbia ruled against the plaintiffs in the State National Bank case—prompting the petition to the U.S. Supreme Court, according to the CEI news release.

ACA International will continue to follow this case.

Read more on legal battles over the bureau’s structure and leadership in a report from ACA International’s Vice President and Senior Counsel of Federal Advocacy in the September issue of Collector magazine.

Related Content from ACA International:

D.C. Circuit Court of Appeals Rules in PHH v. CFPB

PHH Corp. Court Case that Sparked Debate on BCFP Constitutionality Comes to an End

Brett Kavanaugh Says Single-Director Structure of BCFP is ‘Issue of Concern’

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