The Consumer Financial Protection Bureau is in the midst of what many see as its most serious challenge to date. After a CFPB administrative law judge fined PHH Corp. $6 million for allegedly violating RESPA by purportedly receiving kickbacks from mortgage insurers, CFPB Director Richard Cordray increased the penalty to $109 million. PHH appealed that decision to the D.C. Circuit Court and, at oral argument yesterday, the judges on the panel sharply questioned CFPB's attorneys about the constitutionality of CFPB's structure. The Court's questions focused on the significant amount of power granted to Cordray, as the single director of CFPB who can be removed by the President only for cause. Add to that the fact that CFPB is funded by the Federal Reserve and PHH argued that the agency is not accountable to the political branches and is, therefore, unconstitutional. As an example what appears to be the Court's view of the far-reaching extent of the power of CFPB's director, Judge Brett Kavanaugh pointed to the fact that Cordray's decision in the PHH case essentially outlawed an industry practice that had long been considered acceptable.
The PHH case questions the very constitutionality of CFPB's structure and authority. Whichever way the Court rules, it is expected that the losing party will seek further review by a full panel of the D.C. Circuit or the U.S. Supreme Court. Of course, the Court could simply seek to fashion a remedy that would provide greater authority over the CFPB director. Either way, at least for now, the hearing before the D.C. Circuit in the PHH case will encourage CFPB targets to continue to aggressively defend CFPB enforcement actions and, when doing so, include challenges to CFPB's authority.
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