Until October 10, none of the constitutional or scope of
enforcement authority challenges to the Consumer Financial
Protection Bureau's ("CFPB" or Bureau") power
have been successful. That changed on October 11 when the U.S.
Court of Appeals for the District of Columbia held the Director of
the Bureau has too much unilateral, unchecked power and the law
that the Director can only be removed by the President "for
cause" is unconstitutional. The Court limited the remedy to
the problem, however, by striking the "for cause" portion
of the law and held that the President supervises the Director, and
the President may remove the Director without cause.
In the long-anticipated decision in PHH Corp. v. Consumer
Financial Protection Bureau, Circuit Judge Kavanaugh found
that "the CFPB, lacks that critical check and structural
constitutional protection, yet wields vast power over the U.S.
economy." Notably, however, the Court declined to shut down
the entire CFPB even after finding the Bureau constitutionally
flawed. The CFPB's operations can go on as usual and can
continue to take enforcement actions against companies.
The Court also held that the Bureau's $109 million penalty
against the defendant mortgage company, PHH Corp., was
inappropriate for two reasons. First, the Court held that the
Bureau had improperly applied a retroactive penalty against PHH in
an instance where it had reinterpreted a rule it inherited from the
U.S. Department of Housing and Urban Development in a way that
invalidated HUD's interpretation. "Retroactivity –
in particular, a new agency interpretation that is retroactively
applied to proscribe past conduct – contravenes the bedrock
due process principle that the people should have fair notice of
what conduct is prohibited," Judge Kavanaugh wrote.
Second, the Court held that the CFPB's three year statute of
limitations applied to the CFPB's enforcement effort. The CFPB
has taken the position that it could bring an administrative case
beyond the three-year statute of limitations provided under RESPA.
The Court disagreed, writing, "We need not wait for an
enforcement action 100 years after the fact. This court looks
askance now at the idea that the CFPB is free to pursue an
administrative enforcement action for an indefinite period of time
after the relevant conduct took place."
Ultimately, the Court's decision on the constitutionality of
the Bureau is unlikely to have a major effect on the bureau's
day-to-day operations. In severing the offending provision, the
Court changed the structure of the Bureau to allow the President to
remove the Director of the CFPB at will. This means that the
Director of the CFPB may be subject to turnover every four years on
the election cycle, rather than the five year term provided under
Other parts of the Court's decision should not be
overlooked. The CFPB has been a frequent target of criticism that
it employs its interpretative power over consumer protection
statutes in a more aggressive manner. The Court has imposed an
important check on the CFPB's interpretative power, holding
that the CFPB cannot change the law through interpretation and then
seek to impose the new standard of conduct retroactively. In
addition, the Court's rejection of the CFPB's broad claim
that statutes of limitations do not apply to its enforcement
actions is a further significant limitation on the CFPB's
Regardless, the opinion may not be the final word. The decision
may be appealed by the CFPB, which could either petition for en
banc review of the entire D.C. Circuit or a writ of certiorari from
the Supreme Court. The entire D.C. Circuit or the Supreme Court
could overturn or expand upon the Court's decision on the
constitutionality of the Bureau.
The case is PHH Corp. v. Consumer Financial Protection
Bureau, 15-1177 (D.C. Cir. October 11, 2016), and can be found
The Troutman Sanders' Consumer Financial Services
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