On April 12, the Consumer Financial Protection Bureau was in federal court defending its governance structure against a lawsuit filed by PHH Mortgage pursuant to a penalty levied by the Bureau last year. If the initial interrogatories and oral arguments are any indication, the CFPB may face a significant restructuring.
The issue dates back to August when a D.C. Circuit Court issued a stay against a $109.2 million fine levied against PHH by CFPB Director Richard Cordray. The fine resulted from Cordray’s determination that PHH had violated the Real Estate Settlement Procedures Act (RESPA) every time it accepted a kickback payment on or before July 21, 2008. That determination went far beyond the ruling of an administrative law judge who had limited PHH’s violations to kickbacks that were connected with loans that closed on or after July 21, 2008. Those merited a mere $6.4 million in penalties. PHH appealed Cordray’s decision, requesting a stay on enforcement of the penalty pending an appeal of the outcome. A three-judge appeals panel sided with PHH, saying the balance of hardships and the public interest heavily favored a stay.
In advance of the hearing, the U.S. Court of Appeals for D.C. sent both parties a list of questions that they should be prepared to discuss. The questions suggest some discomfort with the CFPB. One asks, “What independent agencies now or historically have been headed by a single person?” Also, both parties were to address agencies headed by one person whose head is not removable at will but is removable only for cause. Both questions describe the current structure of the CFPB. Another question asks that if the single-head structure violated established administrative law, what would the appropriate remedy be?
The Wall Street Journal reports that the questioning in the courtroom also put pressure on the CFPB. Judge Brett Kavanaugh repeatedly questioned the CFPB’s single-director structure, calling it “very problematic” that such a powerful official was able to make a decision that aimed to overturn a practice long seen by companies as acceptable. “You are concentrating huge power in a single person and the president has no power over it,” Judge Kavanaugh said. The Bureau, he said, has a “very unusual structure” that has “few precedents.”
The panel is expected to issue a decision in several weeks, and any decision against the CFPB is expected to be appealed.