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  • PHH Submits Reply Brief in Case Against CFPB; DOJ Allocated 10 Minutes at May 24 Oral Argument

    Courts

    As recently covered by InfoBytes, on March 31 the CFPB and seven amicus curiae respondents each filed briefing in PHH Corp. v CFPB urging the D.C. Circuit to uphold the constitutionality of the Bureau’s single-director, independent-agency structure. On April 10, PHH filed a reply brief responding to the arguments raised by the CFPB and other respondents, and reiterating its position that, among other things, the en banc court should declare that the Dodd-Frank Act’s creation of the CFPB violated constitutional separation of powers requirements and that the only satisfactory remedy is the complete invalidation of the Bureau.

    Citing Myers v. United States, 272 U.S. 52 (1926), PHH contends that, “the Constitution does not permit Congress to assign any portion of the executive power to an ’independent’ officer who is not accountable to, and removable by, the President.” Id. at 113. Moreover, in addressing comparisons between the CFPB and the FTC, the mortgage lender’s reply argues that “[t]he CFPB’s broad executive, legislative, and adjudicative authority further refutes its claim that it is functionally ‘indistinguishable’ from the FTC in 1935” because, among other reasons, “[i]n 1935, the FTC had no substantive rulemaking powers—the FTC disclaimed that authority until 1962.” In support of this claim, PHH highlights the fact that “the CFPB has all the authority—and more—of a cabinet department such as Treasury or Justice” but “unlike most cabinet positions, the Director may unilaterally appoint every subordinate official in the agency, as well as hire and compensate all CFPB employees outside the normal competitive-service requirements” (emphasis added). In addition to addressing the constitutional issue, PHH’s reply brief also notes that the CFPB has offered no support for its effort to enforce a reinterpretation of the Real Estate Settlement Procedures Act against the companies.

    Oral argument is scheduled for May 24. As provided in a Per Curiam Order issued on April 11, the Court has allocated 30 minutes per side for the argument and an additional ten minutes of argument for the United States as amicus curiae. For additional background, please see our recent PHH Corp. v CFPB Case Update.

    Courts PHH v. CFPB Consumer Finance CFPB Dodd-Frank FTC RESPA Mortgages Litigation Single-Director Structure

  • CFPB Director Withdraws Notification for Final Decision in Payday Lender Charges; Parties File Differing Opinions

    Courts

    On March 31, CFPB Director Richard Cordray issued an order directing the Bureau’s Office of Administrative Adjudication to withdraw a February 13 notification informing the parties that the administrative proceeding against an online payday lender and its CEO (Respondents) had been submitted for a final decision by the CFPB.  The order noted that while the withdrawal “delay[s] [the] resolution of this appeal,” Director Cordray believed it to be appropriate in that it “help[s] minimize unnecessary or duplicative proceedings and . . . facilitate[s] a more efficient resolution of this matter.”

    The March 31 order follows a March 9 order in which parties were directed to file statements indicating whether they objected to the withdrawal of the notification. The parties offered differing opinions in their responses. In their March 24 filing, Respondents agreed generally with the Bureau’s reasons for withdrawal but sought clarification on the timing of the “proposed re-notification in this matter” and, furthermore, stressed that that re-notification should only be made once the cases of PHH Corp v. CFPB, Lucia v. SEC, and Bandimere v. SEC have been resolved by their respective courts. A three-judge panel had previously ruled in PHH that the structure of the CFPB was unconstitutional and that the Bureau’s interpretations of the kickback prohibitions of the Real Estate Settlement Procedures Act (RESPA) and RESPA’s statute of limitations provisions were erroneous. The full court granted the CFPB’s petition in February 2017 and explicitly vacated the panel’s decision (see previously posted Special Alert). Conversely, the Enforcement Counsel’s filing “respectfully” objected to the withdrawal of the notice “because resolution of the PHH matter will not determine the resolution of this proceeding and . . . any delay would be inefficient and would exacerbate the harm to affected consumers.”

    Last September, administrative law judge, the Hon. Parlen L. McKenna, recommended civil money penalties against Respondents totaling over $13 million as well as restitution of over $38 million to be paid to affected consumers. It further affirmed the CFPB’s allegations that the Respondents deceived consumers about the cost of short-term loans, thereby violating the Truth in Lending Act, the Electronic Fund Transfer Act, and the Consumer Financial Protection Act’s prohibition against deceptive acts or practices. Following the recommended decision, the Respondents filed a notice of appeal.

    Courts CFPB Payday Lending PHH v. CFPB Litigation Single-Director Structure

  • Case Update: PHH Corp. v CFPB

    Courts

    March 31 marked the deadline for the CFPB to file its brief in response to PHH Corporation in the U.S. Court of Appeals for the District of Columbia Circuit’s en banc review of the CFPB’s enforcement action against PHH for alleged violations of the Real Estate Settlement Procedures Act (RESPA). As previously covered by InfoBytes, the PHH case began as a challenge to a 2015 penalty the CFPB levied against PHH, which was collected as part of what the CFPB deemed – a “captive reinsurance arrangement.” In fighting the penalty, PHH called into question the Bureau’s constitutionality and in October 2016, a panel of the D.C. Circuit concluded both that the CFPB misinterpreted RESPA, and also that its single-Director structure violated the constitutional separation of powers. On February 16 of this year, however, the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision. In granting en banc review, the court sought guidance from the parties on three specific questions: 

    • Is the Bureau’s structure unconstitutional because its Director may be removed only for cause, and if so, is the appropriate remedy to sever the for-cause removal provision from the Consumer Financial Protection Act?; 
    • May the Court avoid addressing the constitutionality of the Bureau’s structure if it adopts the panel’s holdings as to PHH’s liability under RESPA (and should it adopt those holdings)?; and
    • What is the appropriate disposition of this case if this Court concludes that the SEC’s administrative law judges are “inferior officers” under Lucia v. SEC? 

    Oral argument is scheduled for May 24. This Court has allocated 30 minutes per side for the argument and, as discussed further below, the Department of Justice (DOJ) has filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.

    CFPB’s Brief. On March 31, the CFPB filed its brief for the en banc rehearing in PHH Corp. v CFPB urging the D.C. Circuit  to uphold the constitutionality of the Bureau’s single-director, independent-agency structure. According to the CFPB, neither the Bureau’s current single-director arrangement, nor the “for-cause” restriction on the President’s removal powers prevents the Executive branch from ensuring that the nation’s laws are implemented. Specifically, the brief explains that “[t]he President has no less control over a single-director agency than he does over a multi-member commission.” The brief also sets forth the Bureau’s position that, even “[i]f this Court determines that the Bureau’s structure is unconstitutional,” the appropriate remedy is not to invalidate the agency in its entirety, but rather to “sever the for-cause removal provision” of the Dodd-Frank Act (the Act), thereby allowing the President to remove the Bureau’s director for any reason. In addition to addressing the constitutional question, the CFPB also reiterated its argument that its RESPA interpretation is correct, that PHH and its affiliates violated RESPA, and that the Act’s statute of limitations does not apply to the Bureau’s administrative enforcement authority. And, at the direction of the court, the brief also addressed the potential effect of a decision in Lucia v. SEC that a SEC administrative law judge (ALJ) was an inferior officer under the Constitution. The ALJ used by the CFPB in the PHH enforcement proceeding was, in fact, borrowed from the SEC. Notably, Lucia v. SEC is scheduled to be argued immediately before PHH Corp. v. CFPB, on May 24, 2017.

    Amicus Curiae in Support of the CFPB. Also filed on March 31 were seven amicus curiae briefs, each of which offered arguments, both legal and non-legal, in favor of the CFPB’s continued existence as an independent regulator:

    PHH’s Brief. Briefing for PHH and amicus curiae briefs in support of the mortgage lender were due on March 17. In its opening brief and addendum, PHH focused on the separation-of-powers and remedy issues, raising the RESPA interpretation issue principally in support of the claim that the CFPB’s unconstitutional structure rendered the Bureau dangerously unaccountable. The New Jersey mortgage lender noted, among other things, that Congress has no ability to cut the agency’s budget and the President cannot remove its director without cause. As a general matter, the mortgage lender has argued that the Bureau’s creation “placed massive, unchecked federal power in the hands of a single, unaccountable director” and that “[t]he director alone rules over large swaths of the field of consumer finance, subject to virtually no restraints from the representative branches.”

    DOJ Brief. As previously covered by InfoBytes, the DOJ filed its own brief in the case on March 17, arguing in support of the D.C. Circuit panel’s initial ruling and proposed remedy. The DOJ brief stated, among other things, that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”  As  covered recently on InfoBytes, the DOJ presented arguments that differed both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December. 

    Also, as mentioned above, on April 3, the DOJ filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.

    Amicus Curiae in Support of PHH. The March 10 deadline in the en banc proceeding also brought about the filing of seven amicus curiae briefs in support of PHH’s claims and/or defenses. Six of these filings took the position that the Bureau’s current structure violates separation-of-powers principles:

    A seventh—filed by a combined group of 13 banking and residential real estate-related organizations—argued in support of the company’s interpretation of the RESPA. According to this brief, the CFPB incorrectly changed a long-standing RESPA interpretation that permitted the use of captive reinsurance companies under appropriate circumstances. The changed interpretation was contrary to the Act and to the CFPB’s own regulation. The brief also argued that the Bureau improperly changed the interpretation and applied the new interpretation in an enforcement action without proper notice.

    Courts PHH v. CFPB Consumer Finance Federal Issues RESPA DOJ Mortgages Litigation Single-Director Structure

  • House Financial Services Committee Holds Hearing to Consider the “Unconstitutional Structure of the CFPB”

    Agency Rule-Making & Guidance

    On March 21, the Oversight and Investigations Subcommittee of the House Financial Services Committee held a hearing entitled “The Bureau of Consumer Financial Protection's (CFPB's) Unconstitutional Design.” The majority staff memorandum issued prior to hearing stated that its purpose was to: (i) “examine whether the structure of the [CFPB] violates the Constitution,” and (ii) consider potential “structural changes to the Bureau to resolve any constitutional infirmities.”

    Chairwoman Rep. Ann Wagner (R-Mo.) introduced the proceeding by describing the CFPB as a “an unconstitutional behemoth” with a 'Washington knows best' mindset,” that “side-steps accountability to Congress and the President.” Three of the four witnesses called to testify before the panel shared the general position that the CFPB is unconstitutional as currently structured. 

    • The Honorable Theodore Olson , a partner at Gibson, Dunn & Crutcher LLP and lead counsel for PHH in its suit against the CFPB, shared his personal opinion that the Bureau, “[m]ore than any other administrative agency ever created by Congress,” is “far outside of our constitutional structure, holds the potential for tyrannical governance, and obscures the lines of governmental accountability. [T]he CFPB’s structure is the product of aggregating some of the most democratically unaccountable and power-centralizing features of the federal government’s administrative state.” Particularly with respect to the President, Mr. Olson noted that “by preventing the President from removing the head of the Bureau except for very limited circumstances,” the President is effectively “stripped of the power to faithfully execute the laws in these circumstances.” 
    • Professor Saikrishna Prakash, a Law Professor at the University of Virginia School of Law questioned the Bureau’s constitutionality, characterizing the Director of the CFPB as “the second most powerful officer in the government for he serves under no one’s supervision, enjoys a vast budget not subject to the appropriations process, and exerts enormous influence over several prominent aspects of the economy.” 
    • Adam White, a Research Fellow with the Hoover Institution similarly urged Congress to reform the CFPB while also cautioning against allowing the “CFPB’s original structure to . . . become the new benchmark for the next generation of ‘independent agencies.’” 

    Meanwhile, offering several arguments in support of the Bureau’s current structure was Brianne Gorod – a public interest attorney who has helped prepare briefing in the PHH v CFPB matter on behalf of “current and former members of Congress, who were sponsors of Dodd-Frank” and “participated in drafting it,” and “serve or served on committees with jurisdiction over the [CFPB].” (See, e.g., Motion for Leave to Intervene in Support of the CFPB). Ms. Gorod argued, among other things, that “the President’s ability to remove the Director [of the CFPB] only for cause does not ‘impede the President’s ability to perform his constitutional duty[,]’” but rather, to the contrary, “provides the Executive with substantial ability to ensure that the laws are ‘faithfully executed.’” For this reason and others, Ms. Gorod argued that “the CFPB’s leadership structure . . . is consistent with the text and history of the Constitution, as well as Supreme Court precedent.”

    Agency Rule-Making & Guidance Consumer Finance CFPB House Financial Services Committee PHH v. CFPB Mortgages Litigation Single-Director Structure

  • Trump Administration Files Brief in PHH Corp. v. CFPB

    Agency Rule-Making & Guidance

    On March 17, the Trump Administration’s Department of Justice (“DOJ”) filed its amicus brief in the D.C. Circuit’s en banc review of the CFPB’s enforcement action against PHH Corporation for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”). In October 2016, a panel of the D.C. Circuit concluded that the CFPB misinterpreted RESPA and that its single-Director structure violated the constitutional separation of powers. The DOJ brief states that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”

    Like the brief filed in this case by the Obama Administration DOJ before the change in administration, the current DOJ brief states that “[t]he United States takes no position on the statutory issues in this case, but in the event that the ultimate resolution of those issues results in vacatur of the CFPB’s order [against PHH], it is within this Court’s discretion to avoid ruling on the constitutional question.” However, the brief goes on to state that, because the issue is already before the en banc court and the “question is likely to recut in pending and future cases, it would be appropriate for the Court to provide needed clarity by exercising its discretion to resolve the separation-of-powers issue now.”

    Agency Rule-Making & Guidance Consumer Finance Federal Issues CFPB PHH v. CFPB DOJ Mortgages RESPA Litigation Trump Single-Director Structure

  • In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB

    Courts

    On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.”   Judge Kavanaugh—who  back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.

    As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.

    Courts Consumer Finance CIDs John Doe v CFPB PHH v. CFPB Litigation Single-Director Structure

  • Two Trade Associations File Notices of Intent to Submit Amicus Briefs in PHH v. CFPB

    Courts

    On March 8 and 9, two separate Notices of Intention to Participate as Amicus Curiae were filed in PHH Corp. v. CFPB. The first was filed by ACA International, a trade association for the credit and collections industry. The second was filed on behalf of the following parties: American Bankers Association; American Escrow Association; American Financial Services Association; Consumer Bankers Association; Credit Union National Association; Housing Policy Council of the Financial Services Roundtable; Independent Community Bankers of America; Leading Builders of America; Mortgage Bankers Association; National Association of Federally- Insured Credit Unions; National Association of Home Builders; National Association of REALTORS; and Real Estate Services Providers Council. Nearly all of the associations listed above filed either joint or separate amici briefs at the panel stage and believe that “the en banc Court will be aided by a brief addressing how the Bureau’s Order not only contravenes RESPA’s statutory text, governing regulations, and applicable policy statements, but also how the Order’s violation of fair-notice principles disrupts the critically important home-lending market.”

    Courts CFPB PHH v. CFPB RESPA Mortgages Litigation

  • Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit

    Consumer Finance

    On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.

    As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”

    Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.

    Consumer Finance PHH v. CFPB Courts CFPB U.S. Solicitor General Trump DOJ RESPA Mortgages Litigation Single-Director Structure

  • Intervention by Lawmakers in PHH Case Denied by D.C. Circuit

    Courts

    On February 2, a federal appeals court in Washington, D.C., in a brief order, denied a motion by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB to intervene in PHH Corp. v. CFPB. The order also denied similar motions submitted by 16 state attorneys general and a coalition of interest groups. As previously covered on InfoBytes, the court is still considering a petition by the Bureau for rehearing an October ruling that said CFPB Director Richard Cordray may be removed by the president without cause.

    Courts Consumer Finance PHH v. CFPB Cordray Mortgages RESPA Litigation

  • Special Alert: CFPB Consent Orders Address Wide Range of Real Estate Referral Practices Under Section 8(a) of RESPA

    Lending

    On January 31, the CFPB announced consent orders against mortgage lender Prospect Mortgage, LCC (“Prospect”), real estate brokers Willamette Legacy, LLC d/b/a Keller Williams Mid-Willamette, and RGC Services, Inc. d/b/a Re/Max Gold Coast Realtors (together, “the Brokers”), and mortgage servicer Planet Home Lending, LCC (“Planet”), based on allegations that a wide range of business arrangements between the parties violated the prohibition on “kickbacks” in Section 8(a) of RESPA.

    In a press release accompanying the settlements, CFPB Director Richard Cordray stated that the Bureau “will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”  The consent orders address a number of practices that have long been the source of uncertainty within the industry.  Unfortunately, despite acknowledging in the orders that referrals are an inherent part of real estate transactions, the Bureau provided little constructive guidance as to how lenders, real estate brokers, title agents, servicers, and other industry participants should structure referral arrangements to comply with RESPA.

    RESPA Section 8(a)

    Section 8(a) of RESPA provides that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.”

    Notably, the CFPB’s consent orders make no reference to Section 8(c)(2), which provides that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”  In a much discussed decision, a panel of the U.S. Court of Appeals for the D.C. Circuit reversed the CFPB’s $109 million penalty against PHH Corporation in October 2015 based on, among other things, the CFPB’s failure to establish that payments for the service at issue (reinsurance) exceeded the fair market value of the service.  The CFPB is currently seeking rehearing of this decision from the full D.C. Circuit, as discussed in our summaries of the Bureau’s petition for en banc reconsideration, responses from PHH and the Solicitor General, a motion to intervene filed by several State Attorneys General, and, most recently, PHH’s reply to both the Solicitor General and the motions to intervene.

     

    Click here to read full special alert

    * * *

    If you have questions about the order or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.

    Mortgages Consumer Finance CFPB RESPA Special Alerts PHH v. CFPB Cordray Litigation

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