CFPB Court Hearing: What To Expect

The Consumer Financial Protection Bureau (CFPB) will see a federal appeals court hear oral arguments later this week on the constitutionality of the government watchdog in the case of PHH Corp. versus CFBP.

According to a report in The American Banker, the case is being closely watched, because if the court rules in PHH’s favor, it could give President Trump the power to fire Richard Cordray, the head of the CFPB. The Justice Department had backed the CFPB under the Obama Administration but is backing PHH, the mortgage lender and servicer since Trump won the election in November.

The report noted a ruling isn’t expected until 2018, but the hearing later in the week could give watchers a glimpse of what they may be thinking.

The report noted the key topics of the hearing will be the constitutional question of whether the CFPB’s single director structure is consistent with the U.S. Constitution. Earlier in the year, a three-judge panel found the CFPB’s structure was without proper checks and balances, and as a result, struck down the rule that the CFPB director could only be fired for cause. The CFPB argued the decision was made in error and got the Appeals Court to decide the case.

If the appeals court agrees the structure is unconstitutional, it could remove the for-cause languages from the rules rather than disbanding the entire agency. The Justice Department has said it would be happy with the language being removed, noted the report.

If the court of appeals rules the other way, then PHH has to appeal the case to the Supreme Court. “There is a significant possibility that PHH will not be decided on the constitutionality of the CFPB’s structure,” said Quyen Truong, a partner at Stroock & Stroock & Lavan and a former CFPB assistant director and deputy general counsel, in the report.