U.S. Set to Signal Stance in Landmark CFPB Powers Case

By Chris Bruce

The Trump administration will likely give a thumbs-down verdict on the constitutionality of the Consumer Financial Protection Bureau and the tenure of its Director Richard Cordray in soon-to-be-filed brief, legal observers said ( PHH Corp. v. Cons. Fin. Protection Bureau , D.C. Cir., 15-cv-01177, scheduling note 3/7/17 ).

The U.S. Court of Appeals for the District of Columbia Circuit’s full bench is reviewing an October decision by a three-judge panel in favor of PHH Corp., a Mount Laurel, N.J., mortgage company that appealed a 2015 enforcement order against it by Cordray.

Two judges on the panel said the CFPB is “unconstitutionally structured,” calling the autonomy vested in Cordray and limitations on the ability of the president to remove him a “gross departure from settled historical practice.”

Undisturbed, the ruling would leave Cordray, who enjoyed strong support from President Barack Obama, exposed to possible removal by President Donald Trump. That heightens the importance of the government’s forthcoming friend-of-the-court brief. A government brief in opposition to the CFPB likely would have significant weight at the D.C. Circuit, and would boost the odds that the Justice Department might block CFPB efforts to push the case to the U.S. Supreme Court later on.

Andrew L. Sandler, chairman and executive partner of Buckley Sandler in Washington, D.C., said he expects a straightforward argument by the government that the October 2016 ruling got it right the first time.

“We expect the brief will take the view that findings of the initial panel should be affirmed and that the CFPB Director should serve at the pleasure of the President and the for-cause dismissal provision in Dodd-Frank is unconstitutional,” Sandler told Bloomberg BNA. “We do not expect the brief to address other issues in the case.”

Filing Sets Expectations

The government already has raised expectations that it may oppose the CFPB, established by Congress in 2010 as a new federal consumer protection watchdog. In the waning days of the Obama administration, Justice Department lawyers Dec. 22 said the D.C. Circuit should review the October panel decision. They said the case “involves an important constitutional question” and rests on an analysis at odds with relevant U.S. Supreme Court precedent.

That was then. The latest U.S. filing came March 3, when the government said it would file a brief, signaling possible daylight between it and the CFPB.

“As this Court recognized in calling for the views of the United States on the question whether rehearing should be granted, the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies,” the March 3 filing said.

The CFPB, established by the Dodd-Frank Act as an independent agency, is representing itself in the case. The agency’s next brief is due March 31.

Professor: Opposition Likely

Jeff Sovern, a professor at St. John’s University School of Law in Jamaica, N.Y., and co-coordinator of the Consumer Law and Policy Blog, said that likely means that the government will argue that the CFPB, as currently constituted, is not constitutional.

Although the Justice Department sees its role as defending the constitutionality of statutes, he said, on rare occasions it takes a different tack. That happened in 2011, he said, when the Justice Department under President Obama declined to defend the constitutionality of the Defense of Marriage Act—a move that critics called evidence of a politicized Justice Department.

“In the longer term, an argument that the president can remove the CFPB director from office without cause, as the PHH panel decision held, would suggest that the president wishes either to fire Director Cordray without offering a cause, or at least to preserve his ability to do so,” Sovern told Bloomberg BNA. “Firing a director who has returned nearly $12 billion to nearly 30 million consumers would be difficult to square with the president’s pledge to aid ordinary Americans.”

Rethinking Review?

Joseph T. Lynyak III, a partner in the Los Angeles and Washington offices of Dorsey & Whitney, said the government’s brief might make an argument that looks back to the government’s Dec. 22 filing—the brief that urged the D.C. Circuit to hear the case.

According to Lyntak, the forthcoming brief might say the Dec. 22 filing was “inappropriate,” and ask the D.C. Circuit to rethink its decision to review the October ruling.

That offers several advantages for the Trump administration, he said. If the D.C. Circuit agrees, the administration could immediately fire Cordray without cause. Even if the D.C. Circuit disagrees, he said, the Justice Department would still be able to assert its constitutional arguments before the D.C. Circuit. In addition, the CFPB, if it loses at the D.C. Circuit, can only seek U.S. Supreme Court if the Justice Department agrees. Any ability to seek Supreme Court review, Lynyak said, “is controlled by the DOJ.”

Finally, he said that choice could help a new administration that’s still struggling to move ahead with appointments and other matters. “Putting off a distracting fight allows the Treasury to focus on issues that have possible higher priorities,” Lynyak said.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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