On October 11, 2016, the Court of Appeals for the District of Columbia issued a detailed opinion vacating a $103 million fine levied by the Consumer Financial Protection Bureau (CFPB) against PHH Corporation, a mortgage lending and servicing company.
In PHH Corporation v. Consumer Financial Protection Bureau, No. 15-1777, the appeal arose from an underlying CFPB investigation that resulted in a $6.4 million levy against PHH Corporation associated alleged violations of the Real Estate Settlement Procedures Act (RESPA). PHH Corporation appealed that finding, which placed the review before the Director of the CFPB, Richard Cordray. Mr. Cordray's decision affirmed an Administrative Judge's findings and expanded the scope of the penalty from $6.4 million to $109 million. Of note, Director Cordray retroactively applied an interpretation of RESPA prohibitions resulting in a substantial increase to the initial fine. PHH challenged Director Cordray's decision arguing, inter alia, that the CFPB power structure amounted to an unconstitutional independent agency. PHH further contended that “the CFPB violated bedrock due process principles by retroactively applying its new interpretation of the statute against PHH.” PHH also argued on appeal that the CFPB and the Dodd-Frank Act should be abolished.
The Court found that the leadership structure of the CFPB was unconstitutional and placed excessive and unchecked "unilateral power" with its Director, who could only be terminated or removed for cause, rather than at the will of the President. The Court explained "[b]y 'unilateral power,' we mean power that is not checked by the President or by other colleagues. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power." (emphasis added) The Court went on to describe the CFPB director as a de facto "President of Consumer Finance" and found that such "massive, unchecked power" was improper for an independent government agency. Although the Court declined to abolish the CFPB, it severed the limitation that the Director may only be terminated "for cause," thereby subjecting it to direct oversight by the Executive Branch.
The Circuit Court's finding provides support to concerns that many have expressed regarding the CFPB's apparent unfettered exercise of power and authority following its creation in 2010. However, it does not curtail the scope of authority granted to the CFPB, but rather tempers the exercise of its broad powers through additional checks and balances.
The Circuit Court's decision can be found here.