From the day it was born out of the Dodd-Frank reforms, the Consumer Financial Protection Bureau has faced questions over the constitutionality of its independent, single-director structure.
On Wednesday, the U.S. Court of Appeals for the D.C. Circuit will take a step toward providing an answer, as a full panel of 11 judges will hear arguments in the mortgage provider PHH Corp.'s appeal of a $109 million penalty.
PHH, represented by a team from Gibson, Dunn & Crutcher, prevailed before a divided three-judge panel, which struck down the CFPB's structure as unconstitutional in October. Writing for the majority, Judge Brett Kavanaugh slammed the "massive, unchecked power" afforded to the CFPB director and said the president should be able to fire the agency's leader at will — not just for cause. That ruling was vacated when the D.C. Circuit agreed to rehear the case.
"The bureau was designed to be largely immune from politics, and has governed accordingly. The court's decision may also determine whether that approach changes — both during this administration and beyond," Covington & Burling partner Eric Mogilnicki said.
The Big Picture: What's at Stake?
The CFPB isn't going away no matter how the D.C. Circuit rules. But giving the president greater power to remove the director — a Senate-confirmed post that comes with a five-year term — does lessen the bureau's independence.
"You can debate all the constitutional questions and get into the weeds. The reality is what it is: [Richard] Cordray is viewed as very aggressive. If he could be removed, then [President Donald] Trump could put in someone who is more open to hearing industry concerns," said Reed Smith partner Maria Earley, a former CFPB enforcement attorney.
Cordray's term is set to expire in July 2018. There is speculation Cordray, a Democrat, might run for governor in his home state of Ohio. Trump could move to fire Cordray before the appeals court rules — and before there's any action in the Supreme Court — but that could kick up a big lawsuit or even give Cordray a publicity boost.
A ruling against the CFPB could also spur significant litigation — from other companies — about the propriety of earlier rulings and fines. The D.C. Circuit panel back in October expressly declined to take up that issue. "We need not here consider the legal ramifications of our decision for past CFPB rules or for past agency enforcement actions," Kavanaugh wrote.
Who's Arguing on Wednesday?
After winning over the three-judge panel, former Solicitor General Theodore Olson will again argue on behalf of PHH before the en banc court. Olson and CFPB attorney Lawrence DeMille-Wagman were each given 30 minutes of argument time. U.S. Department of Justice lawyer Hashim Mooppan will receive 10 minutes of argument.
Mooppan joined the Justice Department's Office of the Solicitor General in February from Jones Day, where he had been a partner. He was appointed this month as deputy assistant attorney general for civil appellate. Mooppan was among the more than a dozen Jones Day attorneys who left the firm to join the Trump administration or executive agencies.
What's PHH Fighting Over Anyway?
In a word, a huge penalty: $109 million. The CFPB alleged in 2014 that PHH had been engaging in an illegal kickback scheme. According to the CFPB, PHH referred borrowers to partner mortgage insurers. In exchange for the referral, the mortgage insurers purchased reinsurance from PHH.
