On Feb. 16, 2017, the D.C. Circuit granted the CFPB’s petition to rehear en banc the court’s landmark October 2016 decision finding that the structure of the CFPB was unconstitutional. We covered the panel decision here. In its Feb. 16, 2017, order the D.C. Circuit directed the parties to brief three specific issues:

(1)        Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

(2)        May the court appropriately avoid deciding that constitutional question, given the panel’s ruling on the statutory issues in this case?

(3)        If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

This order suggests that the D.C. Circuit may elect not to reach a decision about the constitutionality of the CFPB’s structure. The second issue posed by the D.C. Circuit – whether the court may appropriately avoid deciding the constitutional questions, given the panel’s ruling on the statutory issues – offers a means to sidestep the constitutional questions entirely.  In her opinion concurring in part with and dissenting in part from the October 2016 decision, Judge Karen Lecraft Henderson raised this issue. She opined that a constitutional analysis was unnecessary, citing cases for the proposition that the court’s “established practice is to resolve statutory questions at the outset where to do so might obviate the need to consider a constitutional issue.” PHH Corp. et al. v. Consumer Financial Protection Bureau, 839 F.3d 1 at *57-58 (D.C. Cir. 2016). She further stated that “prudential considerations counsel against our reaching out to invalidate the ‘for cause’ removal provision.” Id.

The Underlying Case

This case began in 2014 when the CFPB instituted an administrative enforcement action against PHH, accusing it of violating Section 8 of the Real Estate Settlement Procedures Act (RESPA) by referring its customers to insurers that then purchased reinsurance from a PHH subsidiary. CFPB Director Cordray issued a $109 million order against PHH, which PHH appealed to the D.C. Circuit. PHH raised a number of statutory arguments on appeal and challenged the constitutionality of the CFPB’s single-director structure.

In the October 2016 decision, the panel predominantly focused on the constitutional considerations. The constitutional challenge was that the CFPB was led by a single director who could be removed only “for cause,” that is, for “inefficiency, neglect of duty, or malfeasance in office” during the director’s fixed five-year term. 12 U.S.C. § 5491(c)(3). This leadership structure, according to the D.C. Circuit panel decision, conferred power on the agency that was “massive in scope” and made the CFPB “unaccountable to the President.” Id. at *6-7.

The panel compared the single-director structure of the CFPB to that of other independent agencies such as the Federal Communications Commission (the FCC), the Securities and Exchange Commission (the SEC) and the Federal Trade Commission (the FTC). Unlike the CFPB, the FCC, the SEC and the FTC “have historically been headed by multiple commissioners, directors or board members that act as a check on one another.” A multimember structure “reduces the risk of arbitrary decision making and abuse of power, and thereby helps protect individual liberty” according to the decision. Id. at *6.

Rejecting PHH’s urging to shut down the CFPB entirely, the panel severed the statute’s unconditional “for-cause” provision from the remainder of the statute. The logic was that without the “for-cause” provision, the president had the power to supervise and oversee the director: “the CFPB would continue to operate and perform its many duties, but will do so as an executive agency akin to other executive agencies like the Department of Treasury or the Department of Justice” where the president provides a check on the actions of those executive agencies. Id. at *8-9.

Only after analyzing the constitutionality of the CFPB did the panel decision turn to RESPA. On the statutory issue, the panel held that the CFPB had overstepped its authority in introducing a new interpretation of Section 8 of RESPA regarding kickbacks and unearned fees.  12 U.S.C. § 2607. In the action against PHH, the CFPB interpreted Section 8 to prohibit captive reinsurance agreements, even if the mortgage insurers pay no more than reasonable market value to consumers, which was permitted by the safe harbor provision of 12 U.S.C. § 2607(c). The CFPB also retroactively applied its new interpretation of Section 8 to PHH, which the panel held to violate fundamental due process principles. Id. at 41.


Oral argument is scheduled for May 24, 2017, but a decision is unlikely to come for many months. It remains to be seen how President Trump’s Justice Department will participate in the case, and whether the D.C. Circuit will decide the matter without revisiting the structure of the CFPB. Meanwhile, Director Cordray continues to serve his five-year term, which is set to expire in July 2018.