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CFPB's future remains in the hands of the courts

The U.S. Court of Appeals for the District of Columbia (D.C. Circuit) heard oral arguments last week in the closely watched case that challenges the Consumer Financial Protection Bureau's (CFPB's) authority. This case, filed by PHH Corp., is considered hugely significant for the mortgage industry. At stake is the potential for a court ruling that would result in the restructuring of the CFPB and a significant check on its power. Joseph Lynyak, a partner with the Washington, D.C.-based Dorsey & Whitney law firm, spoke with Scotsman Guide News about his read of the latest court hearing.

What is the court interested in?

LynyakThere are two underlying issues. The first was the allegations made by the CFPB against PHH on the RESPA [Real Estate Settlement Procedures Act] issue, which received virtually no time at all in the hearing. The vast majority of the time (well over 90 percent of the oral argument) dealt with the constitutional issue of whether the CFPB was structured properly [by having] a sole director with the caveat that the president could only remove the person for cause.

Did you get any sense of which way the judges were leaning?

The three-judge panel [of the D.C. Circuit, which this past October threw out a $109 million fine against PHH, found that the CFPB misapplied RESPA and shot down a provision that the CFPB's director could only be removed by the president "for cause"] wrote what I thought was a very detailed and thoughtful analysis, but other members of the en banc full complement of the court were clearly skeptical and took most of the time in questioning PHH and the Department of Justice representative on their views about the applicability of certain Supreme Court cases.

From their questioning, is there any indication they’ll reverse course?

I have learned over the years the last thing you want to do is read anything into the questioning by an appellate court. Oftentimes, they simply enjoy in the intellectual  debate. I have read several articles over the last couple of days that it was very clear that they were leaning in favor of the CFPB, and frankly I think that is a stretch. You don’t know what is going through their minds.

When do you expect a decision?

The court goes out of session in the middle of August, and so I would not be surprised if an opinion would not be issued until after Labor Day — unless the vote is so completely one-sided that the court is able to write and sign off on an opinion relatively soon. Because of the significance of the case (and clearly differing views expressed by the members of the court) my guess would be after Labor Day. 

Judges appointed by Democrat presidents hold the majority on the D.C. Circuit. Is there a political component to pay attention to?

I have always viewed constitutional separation-of-powers issues as being constitutional “nerdism,” in that it is very difficult to compartmentalize powers issues using a political analysis. It is really a very arcane area that is rarely addressed by the courts. Maybe if you are being cynical you could conclude that the votes go in favor of the Democrats on the court, but this is just a very narrowly defined area of constitutional law, which is intellectually complex. 

Was there anything else to add.

One possible result is that the court reverses the three-judge panel and the government appeals the result to the Supreme Court. In that instance, the Free Enterprise decision [a 2010 Supreme Court decision that held that a provision in the Sarbanes-Oxley Act that made members of the Public Company Accounting Oversight Board only removable “for cause” was inconsistent with the Constitution’s separations of powers] likely becomes the leading legal guidance. Because the chief justice wrote that decision, it would set the stage for an interesting oral argument and decision — with the chief justice playing a leading role because of his interest in separation of powers problems.

But the implications of the court's decision would not likely affect the CFPB under current Director Richard Cordray, whose term expires in July 2018, right?

There are people who are interested in the CFPB that either want Director Cordray fired yesterday or want him to stay on to the end of his term. The administration has got so many more things with higher priority that they need to concern themselves with at the moment that, in some respects, the delay helps the administration by allowing them to let the litigation take its course.


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