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DOJ lines up against CFPB

The U.S. Department of Justice has changed sides and now partially supports the mortgage lender PHH Corp. in a closely watched case that is challenging the constitutionality of the Consumer Financial Protection Bureau (CFPB).  

Legal experts told Scotsman Guide News that the outcome will likely determine if current CFPB Director Richard Cordray can keep his job through the rest of his term.

PHHcaseThe U.S. Justice Department filed a brief on Friday in the United States Court of Appeals for the District of Columbia (the D.C. Circuit) that supports striking out a provision of the Dodd-Frank Act that limits the president from removing the CFPB's director, except “for cause.”

Two judges on a three-judge panel of the D.C. Circuit in October ruled that the current structure of the CFPB is unconstitutional because it concentrates enormous power in a single director. The judges solved the problem by striking out the “for-cause” provision, enabling the president to remove the director at will. Last month, the D.C. Circuit set aside the three-judge panel's decision and agreed to a hearing before the entire court of those issues that pertain to the CFPB's constitutionality. 

It wasn’t surprising that the Trump administration changed sides. Republicans have repeatedly called for changes to the bureau’s leadership structure and budgetary oversight of the agency. Since Donald Trump’s inauguration, congressional Republicans also have been calling on the president to fire Cordray, whose five-year term doesn’t expire until midyear 2018.

Ballard Spahr’s Alan Kaplinski, who leads the law firm’s Consumer Financial Services Group, says it is not likely that Trump will attempt to fire Cordray for cause. As more time passes, he said, that route becomes “increasingly difficult legally and politically awkward [because] the events upon which a removal for cause would be predicated took place quite some time ago.”    

“I think that Trump, at this point, is willing to roll the dice on there being a favorable outcome [in the appellate court case], with the worst-case scenario being that Cordray's term will expire in about 15 months,” Kaplinski told Scotsman Guide News. He also noted that Congress can override any new regulations proposed by Cordray's CFPB through the Congressional Review Act.

Analysts also noted that it was significant that Trump’s Justice Department only sided with PHH’s claims on the leadership structure, but did not go so far as to support the lender’s claim that the agency itself was unconstitutional and should be dismantled.

“In stopping short of calling for abolishment of the CFPB, the DOJ points to the concept of judicial restraint, stating that when faced with a constitutional flaw, a court should take the narrowest possible approach to fix that flaw, which in this case is rendering the director subject to removal at-will rather than abolishing the CFPB,” said Benjamin Olson, a partner in the Washington, D.C., office of BuckleySandler.  

“It’s a more lawyerly approach that runs contrary to some of the political rhetoric around the abolishment of the CFPB,” Olson told Scotsman Guide News. 


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