The D.C. Circuit held today that the single-director structure
of the CFPB violates Article II of the United States Constitution,
and added important substantive rulings on the Real Estate
Settlement Procedures Act (RESPA).
The issue presented in PHH Corp. v. Consumer Financial
Protection Bureau, Case No. 15-1177 (Oct. 11, 2016), was
"Whether, under Article II of the Constitution, Congress can
create an independent agency headed by a single director, removable
by the President only for cause." The opinion, authorized by
Circuit Judge Kavanaugh, began with emphasizing the "grave
threat to individual liberty" that "[t]he U.S.
Government's executive power to enforce federal law against
private citizens" can represent. Discussing the long history
of separation of powers, the Court went on, "no independent
agency exercising substantial executive authority has ever been
headed by a single person. Until now."
The Court ultimately held that "This new agency, the CFPB,
lacks [a] critical check" that a multi-member structure would
provide, "yet wields vast power over the U.S. economy,"
adding, "So 'this wolf comes as a wolf.'"
(Quoting Morrison v. Olson, 487 U.S. at 699 (Scalia, J.,
dissenting).) In other words, the Court held that "the CFPB is
This does not mean that the Court agreed that the CFPB should be
shut down, however. Instead, the Court held that "Supreme
Court precedent dictates another remedy": severing a
problematic provision permitting removal of the director only for
cause, from the rest of the statute. With that provision excised,
the Court held that "the President now will have the power to
remove the Director at will, and to supervise and direct the
Director. The CFPB therefore will continue to operate and to
perform its many duties, but will do so as an executive agency akin
to other executive agencies headed by a single person."
Finally, the Court agreed with PHH's substantive arguments
(1) "Section 8 of the Act allows captive reinsurance
arrangements so long as the amount paid by the mortgage insurer for
the reinsurance does not exceed the reasonable market value of the
(2) "the CFPB departed from the consistent prior
interpretations issued by the Department of Housing and Urban
Development, and that the CFPB then retroactively applied its new
interpretation of the Act against PHH, thereby violating PHH's
due process rights," thereby "violat[ing] bedrock
principles of due process"; and
(3) "a three-year statute of limitations applies to all
CFPB enforcement actions to enforce Section 8, whether brought in
court or administratively."
Stay tuned for our client alert discussing in detail the case
and its impact.
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
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