PHH Mortgage Corp. ("PHH") filed a case that will bring into question the constitutionality of the Consumer Financial Protection Bureau ("CFPB") in light of a recent decision made by its Director, Richard Cordray. PHH is challenging Cordray's interpretation of violations under the Real Estate Settlement Procedures Act ("RESPA") that allowed him to change a $6 million penalty handed down by an administrative law judge, to the $109 million that the CFPB director handed down when PHH appealed the original decision.
The constitutionality of the CFPB has been challenged since its formation in 2010. Critics call into question its structure, with a single director as opposed to the commission structure of other federal organizations; the Bureau's sourcing of funds through the Federal Reserve System, as opposed to congressional appropriations; and the overall political implications of demanding cause be presented to Congress before a president removes a director. These arguments are expected to seep into the questions raised by PHH about Director Cordray's actions.
The CFPB was warned by Judges hearing the case that they should prepare to offer their interpretation of the wording used in the Dodd-Frank Act regarding the limits of presidential removal of the CFPB director and the single-director structure's purpose. The CFPB is expected to draw upon the decision in the 2010 case, Free Enterprise Fund v. Public Company Accounting Oversight Board, which affirmed a D.C. Circuit ruling that provisions protecting against dismissal without cause were constitutional.
Whether PHH wins or loses the case at hand, the implications could limit the independence and power of future actions by the Bureau. Allowing plaintiffs to call into question the Bureau's constitutionality and structure could change the operational structure and values of the Bureau itself.
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