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**UPDATE** PHH v. CFPB
On January 27, PHH filed a scheduled response brief to views briefed last month by the U.S. Department of Justice (DOJ) under President Obama, likely bringing to a close the parties’ briefing of the CFPB’s petition for en banc review by the full D.C. Circuit of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. Also on January 27, PHH separately filed a (less significant) brief, opposing the recent-filed motion to intervene on the CFPB’s behalf submitted by 17 Attorneys General.
As previously covered on InfoBytes, late last year the Court invited briefing by President Obama’s DOJ on behalf of the United States. (Note that the DOJ does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The DOJ’s brief focused on the constitutional issue (without wading into the RESPA rulings), and argued that the en banc court should either (i) review the panel’s majority holding that the CFPB’s structure was unconstitutional because the majority’s reasoning was erroneous in view of Supreme Court precedent, or (ii) review and simply adopt the dissenting panelist’s view that because the panel was in all events reversing the CFPB’s RESPA rulings and remanding to the CFPB on that basis, the panel majority should not have reached the constitutional issue.
In response to the DOJ, PHH argues that en banc review is unnecessary because the DOJ had only pointed to an error in the panel’s constitutional reasoning, without stating whether DOJ’s preferred mode of analysis would have led to a different result than the one reached by the panel, namely the severing of the “for cause” removal provision applicable to the CFPB Director under Dodd-Frank. PHH also contended that there is no precedent for an en banc court panel to review a panel decision just to determine whether the panel had properly reached a constitutional issue, and that in any event the panel’s decision to reach the issue was entirely proper (and therefore not worthy of review) because, as PHH’s framed the matter, the panel could not have remanded the case to an agency with a potentially unconstitutional structure.
In addition, on January 26, two other non-parties filed two motions to intervene on the CFPB’s side: (i) one by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, Sen. Sherrod Brown of Ohio and Rep. Maxine Waters of California, respectively; and (ii) one by a coalition of interest groups, which included the Center for Responsible Lending, US PIRG, Americans for Financial Reform, the Leadership Conference on Civil and Human Rights, and other movants.
State Attorneys General Seek to Intervene in PHH v. CFPB Case
On January 23, the Attorneys General of 16 states and the District of Columbia (the State Attorneys General) filed a motion requesting the permission of the D.C. Circuit to intervene in the CFPB’s petition for en banc reconsideration in PHH Corp. v. CFPB. In the motion, the State Attorneys General argue that they have a vital interest in the matter because the October 2016 panel decision subjecting the CFPB Director to “at will” removal by the President “threatens to undermine the ability of the State Attorneys General [to work with the CFPB] to bring effective civil enforcement and coordinated regulatory actions free from political influence and interference.”
Noting the possibility that President Trump may seek to remove CFPB Director Cordray before the petition for rehearing is resolved or refuse to pursue an appeal to the Supreme Court if the panel decision stands, the State Attorneys General raise the concern that “[t]he incoming administration … may not continue an effective defense of the statutory for-cause protection of the CFPB director.” Therefore, because “[a] significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot,” the State Attorneys General argue that the D.C. Circuit should allow them to intervene to protect their interests.
In addition to the District of Columbia, the motion was filed on behalf of the Attorneys General for the following states: Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington. The filing of the motion was announced by Connecticut Attorney General George Jepsen, whose office prepared the initial draft.
House GOP Report Claims CFPB Violated APA
On January 18, GOP members of the House Financial Services Committee released “The CFPB’s Vitiated Legal Case Against Auto-Lenders”, an investigative report prepared by GOP members who are of the belief that the CFPB likely has and continues to violate the Administrative Procedure Act. Relying mostly on internal CFPB documents obtained by the committee, the report focuses on the Bureau’s 2015 rule authorizing it to supervise larger participants in the auto lending market. In an accompanying press release, Committee Chairman Rep. Jeb Hensarling noted that the CFPB likely violated federal law when CFPB Director Richard Cordray failed to “heed CFPB attorneys who advised him to publish a list of institutions the Bureau believed would be subject to the proposed [auto-lending] rule” and/or “re-open the public comment period after it had closed.”
The report was released amid uncertainty over the fate of Director Cordray as the new administration assumes office. As previously covered in InfoBytes, a group of Democratic senators sent a letter Jan. 10 to President-elect Trump urging him not to dismiss Cordray, and noting that an attempt by Trump to fire him would be hard-pressed to withstand a legal challenge. This latest investigative report was the third released by GOP members on the panel over the last 14 months concerning CFPB efforts to regulate auto lenders—which Rep. Hensarling describes as “dangerously out-of-control,” and “unconstitutional.”
House Democrats Defend CFPB Director in Response to GOP Letter Demanding His Dismissal
On January 10, Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, and 20 Democratic panel members sent a letter to President-elect Donald Trump urging him to reject calls by Republicans to fire CFPB Director Richard Cordray. Among other things, the letter argues against “entering into a protracted – and likely unsuccessful – legal battle to oust” Director Cordray before his term expires in July 2018. Specifically, the letter “caution[s]” the President-Elect “not to engage in partisan litigation, particularly since it is likely to be unsuccessful and will needlessly divert government resources away from other important priorities.” The lawmakers contend further that removing the CFPB Director "for cause” would be an "extraordinary remedy” that is “without historical precedent,” and which “must be subjected to enhanced congressional, judicial, and public scrutiny.”
As previously covered by InfoBytes, a majority of a panel of U.S. Circuit Court for District of Columbia concluded in October 2016 that the CFPB’s governance structure was unconstitutional, and, as a corrective measure, authorized the President to fire the Bureau’s sole Director at will—a ruling for which the Bureau now seeks rehearing en banc.
Two GOP Senators Urge Incoming Administration to Remove Director Cordray
On January 9, two GOP lawmakers sent a letter to Vice President-elect Mike Pence urging the incoming administration to remove CFPB Director Richard Cordray “promptly after [President Trump’s] inauguration.” Stating that “[i]t’s time to fire King Richard,” Sen. Ben Sasse, a member of the Senate Banking Committee, and Sen. Mike Lee cited the D.C. Circuit’s October 2016 decision in CFPB v. PHH to argue that, once in office, President Trump has the constitutional authority to remove Director Cordray immediately. In pushing for Director Cordray’s ouster, the Senators noted, among other things, the CFPB’s decision to move ahead in the lame-duck session with regulations of arbitration clauses and payday loans, which they consider costly and “radically opposed to the Trump administration’s pro-growth agenda.”
As previously covered by InfoBytes, a majority of a panel of U.S. Circuit Court for District of Columbia concluded in October 2016 that the CFPB’s governance structure was unconstitutional, and, as a corrective measure, authorized the President to fire the Bureau’s sole Director at will—a ruling for which the Bureau now seeks rehearing en banc. In addressing this pending appeal, the Senators’ January 9 letter suggests in a footnote that, if the rehearing moves forward, the Justice Department should refrain from defending the CFPB.
PHH v CFPB Update: PHH and U.S. Solicitor General Respond to CFPB's Petition for En Banc Review
On December 22, PHH filed its brief opposing the CFPB’s petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. PHH argued that the case is not worthy of review by the full D.C. Circuit because, although the majority of the panel determined that the CFPB’s structure violated the constitutionally-mandated separation of powers, that “conclusion, which horrifies the CFPB, simply means that an agency of the Executive Branch will be answerable to the Chief Executive.” With respect to the panel’s unanimous decision that the CFPB incorrectly interpreted RESPA, PHH argued that en banc review is inappropriate because, among other reasons, the D.C. Circuit could not side with the CFPB without “creat[ing] a circuit split with every other court to have considered the proper scope of RESPA.”
At the invitation of the D.C. Circuit, the U.S. Solicitor General also filed its brief later the same day. While the Solicitor General supported the CFPB’s petition for en banc review of the constitutional question, it also suggested that, consistent with Judge Henderson’s dissent from the panel opinion, the full D.C. Circuit could simply vacate the CFPB’s order against PHH on the grounds that the Bureau misinterpreted RESPA. Doing so, the Solicitor General notes, would be consistent with the “well-established principle … that normally the Court will not decide a constitutional question if there is some other ground upon which to dispose of the case.” This ruling would vacate the panel majority’s conclusion that the CFPB’s structure was unconstitutional, although the Solicitor General noted that PHH could renew its constitutional challenge if the CFPB continues to pursue the case on remand.
With respect to the separation of powers question itself, the Solicitor General argued that en banc review is warranted because the majority departed from the analysis used by the Supreme Court to decide such questions. Specifically, the Solicitor General suggests that the panel majority erred by concluding “that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers,” noting that the President’s authority over the multi-member FTC was similarly limited and the FTC enjoyed similar powers at the time the Supreme Court upheld its constitutionality.
Finally, after the filing of the Solicitor General’s brief, PHH requested permission to file an additional brief on the grounds that the Solicitor General had raised arguments not presented in the CFPB’s petition.
For additional background, please see our summaries of the panel decision, the CFPB's petition for rehearing, and the D.C. Circuit’s order directing PHH to respond and the Solicitor General to provide views.
Full D.C. Circuit Orders PHH to Respond to CFPB's Petition for En Banc Review, Invites U.S. Solicitor General to Provide Views
On November 23, the full D.C. Circuit ordered PHH to respond to the CFPB's petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. The CFPB’s November 18 petition challenged, among other things, the conclusion by the majority of the panel that the CFPB's structure was unconstitutional and that, to remedy this defect, the Director must be removable at will by the President. PHH’s response, which is due by December 8, would not have been permitted without the court’s order. Similarly, the CFPB is not permitted to file a reply unless ordered by the court. Importantly, the en banc court also “invited” the U.S. Solicitor General “to file a response to the petition” to “express[] the views of the United States.” Although there is no deadline for this response, the invitation allows the Solicitor General to respond before the change in administration, which may be significant because the Dodd-Frank Act does not allow the CFPB to petition the Supreme Court for review without the approval of the Attorney General (12 USC § 5564(e)).
For additional background, please see our summaries of the panel decision and the CFPB's petition for rehearing.