The Most Important Case of the Year

April 18, 2016 at 9:09 am Leave a comment

Often, the biggest battles happen by accident. For instance, the first shots at Gettysburg were fired only after a small contingent of Southern troops came to town foraging for  shoes.

Similarly, you wouldn’t necessarily think that an esoteric legal battle involving the applicability of mortgage reinsurance to the Real Estate Settlement Procedures Act (RESPA) would become the most direct and credible legal challenge to the structure of the CFPB. But that’s what has happened.

On the surface, PHH Corporation v. Consumer Financial Protection Bureau involves whether the CFPB abused its authority when it issued a cease and desist order and a large fine on PHH for violating RESPA. The CFPB argued, an administrative law judge agreed, that   PHH violated RESPA when  it referred   borrowers in need of mortgage insurance to mortgage insurers based on whether the mortgage insurer had entered into a captive reinsurance arrangement with PHH.  The company took the unusual step of appealing the decision to Director Cordray  who issued an opinion increasing the $6.5 million fine imposed by by the administrative law judge to   $109 million fine.

In challenging both the Director’s and the CFPB’s actions, the company’s lawyers allege that the structure of the CFPB violates the Constitution. It alleges that “the CFPB is the first and only federal agency to amass such broad and unchecked powers in the hands of a single person.”  It goes on to argue that the type of broad executive and quasi-judicial powers exercised by the Bureau can only be exercised by a multi-person board.  Otherwise, it effectively runs afoul of the President’s authority.

PHH’s argument got the attention of the D.C. Appellate Court. It also took an  unusual step: It  put both PHH and the CFPB on notice that it wanted answers to the question of whether it is constitutional for an independent agency to be headed by a single person and what the appropriate remedy should be if it decides that the Bureau’s structure is unconstitutional. According to the WSJ the  oral  argument featured questions indicating that some judges are skeptical that its legal to have an independent agency run by a single director not  answerable to the President.

This case appears more than ripe to ultimately be decided by the Supreme Court. When Congress gets around to selecting a 9th Justice, expect there to be a lot of talk about the Justices’ interpretation of agency powers.

Entry filed under: Legal Watch. Tags: .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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