CFPB Constitutionality Aggressively Questioned By Appellate Court

Yesterday, The Consumer Financial Protection Bureau found itself in the unfamiliar position of being on the receiving end of an aggressive line of questioning from a panel of judges on a federal appeals court.

One judge in particular, Brett Kavanaugh, was concerned with the structure of the agency at base and questions as to whether placing such “huge power” unchecked in the hands of essentially one director is constitutionally allowable.

“You are concentrating huge power in a single person and the president has no power over it,” Kavanaugh said, according to The Wall Street Journal. He further noted the CFPB has a “very unusual structure” that has “few precedents.”

At issue in the case in front of the judges are the CFPB’s actions against New Jersey-based lender PHH Corp, which was accused and fined by the watchdog group for violating a law designed to protect mortgage buyers. A rather old law and a rather old violation, according to court papers.

The punishment was steep: PHH was ordered to disgorge $109 million in what the CFPB categorized as ill-gotten gains — a big up step from the mere $6 million the CFPB’s own administrative law judge had ordered.

PHH thought $103 million constituted an unreasonable markup and filed suit in the U.S. Court of Appeals for the District of Columbia Circuit. Two judges on a judge panel heard arguments in the case yesterday.

The CFPB noted that they face a statute of limitations when pursuing court cases, but not in imposing administrative actions – meaning the fact of the age of the violation is irrelevant. They also defended their legally enshrined, and Congressionally enacted power to protect the public good – and the necessity of making that protection essentially immune for outside and corporate influence.

PHH’s attorney Ted Olson, formerly GW Bush’s solicitor general, argued otherwise.

“This agency has more power than any agency ever created by Congress,” Olson said in court. He described the CFPB as an unconstitutional “super executive agency” that is answerable directly to neither the president or the Congress.

While Kavanaugh was the most verbally skeptical of the CFPB, the panel the CFPB faces will not be a friendly one — all three judges were appointed by Republican presidents, an unusual occurrence given most DC appellate judges are actually Democratic appointees.

And this case comes as Dodd-Frank has been increasingly under scrutiny and facing challenges in Congress and in court. Last month, A U.S. District Court judge overturned regulators’ designation of MetLife Inc. as “systemically important,” and thus in line for greater than average oversight.

This case itself has taken a deeper than expected turn. Initially it was expected that the case would be mostly administrative in nature and narrow in focus – issues relating directly to the PHH case and the alleged “kickbacks” PHH took for mortgage insurers that allegedly raised borrower costs. That expectation was upended in early April when the three-judge panel indicated to the two parties that both sides ought to be prepared to answer questions about the constitutionality of the CFPB.

A decision is expected later this week, though any action against the CFPB will all but certainly be appealed to either the full appellate court or to the U.S. Supreme Court.



On Tuesday, March 31, 2020 at 9:00 AM (ET) join PYMNTS CEO Karen Webster and panelists Vincent Kilcoyne and Roland Brandli of SmartStream for an in-depth discussion on the need to use transformative digital strategies to remain relevant in today’s challenging financial landscape. The discussion will cover strategies that will allow clients to improve operational control, reduce costs, build new revenue streams, mitigate risk and comply accurately with regulation.

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