DOJ seeks to preserve Trump’s power in PHH case with CFPB

Ari Karen quoted in The Philadelphia Business Journal, March 17, 2017


The U.S. Department of Justice filed its much-anticipated amicus brief with the D.C. Court of Appeals in support of PHH Corp. in the ongoing dispute with the Consumer Financial Protection Bureau. But the focus was largely on preserving President Donald Trump’s right to replace the CFPB director.

In the 33-page brief, the DOJ said it agreed with the panel striking down a Dodd Frank rule that said the president must show cause to remove the CFPB director.

‘Limitations on the president’s authority to remove a single agency head are a recent development to which the executive branch has consistently objected,’ the Justice Department’s brief said. ‘Under the Constitution and Supreme Court precedent, the general rule is that the president must have authority to remove executive branch agency heads at will.’

Ari Karen, a banking and financial services regulatory attorney at Offit Kurman, said the DOJ’s brief is a sign of bigger things to come.

“Even absent any other legislative reform impacting the CFPB’s structure, the Bureau’s enforcement authority could be significantly curtailed if the DOJ’s priorities do not align with those of the CFPB,” Karen said.

“Without support from the DOJ, the CFPB’s assets and resources are substantially limited in areas such as fair lending and false claims act cases. The DOJ’s position urges the Court to rule on the constitutionality of the CFPB’s structure, rather than sidestepping the issue based on other technicalities. This administration wants to give the President the power to remove the director, which the President would likely act on immediately.”

The U.S. government sought and received permission last week to file the brief in PHH’s landmark legal battle with the CFPB over a controversial fine levied against the mortgage company for allegedly taking illegal kickbacks.

The CFPB appealed the court’s October ruling that declared the agency’s leadership structure unconstitutional and vacated CFPB Director Richard Cordray’s $103 million increase to a $6 million fine levied against PHH two years ago.

In the ruling that might have larger implications regarding the power of the CFPB, a federal appeals court overturned a $109 million penalty against PHH (NYSE: PHH) accused of initiating a kickback scheme. The ruling called the CFPB “unconstitutionally structured,” because too much power rests with the regulator’s sole director. But the court said that it can continue operating with the director removable by the president.

The CFPB originally ruled against PHH in January 2014. Roughly 18 months later, Cordray issued an opinion that dramatically increased the original fine after PHH became the first company to appeal a CFPB administrative enforcement proceeding.

Cordray concluded the Mount Laurel, N.J.-based PHH Corp. illegally took kickbacks in exchange for referring consumers to mortgage insurers. PHH appealed Cordray’s decision to the federal appeals court and won a stay of the penalty in August 2015. It has steadfastly denied taking kickbacks.

In February, the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of the CFPB and granted a rehearing of the case en banc, meaning that it would allow the entire court to hear the case, rather than the three judges who ruled on the case in October.

PHH filed a brief last Friday asking the court to eliminate the CFPB. The agency will respond later this month.

 To read the original article on Philadelphia Business Journal, click here.

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