Today, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) issued its en banc decision in the closely-watched PHH Corp. v. Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) matter. In short, the D.C. Circuit upheld the constitutionality of the structure of the CFPB, reversing its 2016 panel decision.


As we previously reported, on October 11, 2016, a panel of the D.C. Circuit held that the Director of the CFPB had too much unilateral, unchecked power. The portion of the Dodd-Frank Act providing that the Director can only be removed by the President “for cause” was deemed unconstitutional. The 2016 panel found that “the CFPB, lacks that critical check and structural constitutional protection, yet wields vast power over the U.S. economy.”

The panel limited the remedy to the problem, however, by striking the “for cause” portion of the law and held that the President supervises the Director, and the President may remove the Director without cause. The Court also declined to shut down the entire CFPB even after finding the Bureau constitutionally flawed.

The case originally began as a bid by mortgage servicer PHH to overturn a $109 million CFPB penalty for violations of the Real Estate Settlement Procedures Act (“RESPA”). But as a result of the 2016 panel decision, the case changed focus to the broader constitutional question.


The D.C. Circuit “granted en banc review to consider whether the federal statute [the Dodd-Frank Act] providing the Director of the [CFPB] with a five-year term in office, subject to removal by the President only for ‘inefficiency, neglect of duty, or malfeasance in office,’ . . . is consistent with Article II of the Constitution.”

On January 31, 2018, the full D.C. Circuit issued its 7-3 opinion reversing the 2016 panel decision. The Court held that the Dodd-Frank Act provision “shielding the Director of the CFPB from removal without cause is consistent with Article II.” In the 68-page opinion, the Court ruled that the original panel’s decision was incorrect in finding that the CFPB’s structure was unconstitutional: “Applying binding Supreme Court precedent, we see no constitutional defect in the statute preventing the President from firing the CFPB Director without cause.”

The Court then held: “Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will. . . . Congress made constitutionally permissible institutional design choices for the CFPB with which courts should hesitate to interfere.”


The case is not over. There is a chance that PHH appeals the en banc decision to the U.S. Supreme Court, where the case would take on heightened scrutiny and political ramifications. However, the practical effects of the ruling could be favorable to PHH.

Regardless of whether the case is appealed to the Supreme Court, the October 2016 RESPA rulings of the three-judge panel were reinstated by the en banc Court. As a reminder, the panel was unanimous in holding that Section 8 of RESPA permits captive reinsurance arrangements so long as mortgage insurers pay no more than reasonable market value for reinsurance. And, even if Director Cordray’s contrary interpretation (that RESPA flatly prohibits tying arrangements) were permissible, the panel held, it was an unlawful, retroactive reversal of the federal government’s prior position. Finally, according to the panel, a three-year statute of limitations applies to both administrative proceedings and civil actions enforcing RESPA. According to today’s en banc decision, all of those RESPA rulings have been reinstated. This mean that the CFPB’s prior interpretation was based on an incorrect legal theory and, therefore, the CFPB must revisit the entire case in light of the panel’s rulings.

Critically, in accordance with the prior panel ruling, the CFPB’s prior $109 million fine against CFPB has been effectively vacated and remanded to the CFPB for further proceedings. Given the new administration’s position on the CFPB and the appointment of a new director (Mick Mulvaney), the CFPB’s new ruling may prove different under the correct legal standard and/or the fine may be reduced or eliminated altogether.

Troutman Sanders will continue to monitor this case – and all CFPB-related decisions – for future developments.

The case is PHH Corp. v. Consumer Financial Protection Bureau, 15-1177 (D.C. Cir. October 11, 2016), and the D.C. Circuit’s recent decision can be found here.