Wednesday, May 24, 2017

Property Law and Consumer Protection: Some Thoughts on Today's Oral Arguments in PHH Corporation v. CFPB


In October 2016, a panel of the U.S. Court of Appeals for the D.C. Circuit in PHH Corp. v. CFPB, 839 F.3d 1 (D.C. Cir. 2016) struck down a key provision of the Dodd-Frank Act that provided that the director of the CFPB would be appointed by the President and confirmed by the Senate for a set term of five years, and could only be removed by the President for cause. Traditionally, federal agencies are either headed by an executive branch official who serves at the pleasure of the President or by a group of independent commissioners serving for terms (e.g., the Securities and Exchange Commission) and sometimes with additional political or geographic limitations on eligibility. By giving the director of the CFPB—a single individual appointed for a set term and without even budgetary oversight by Congress—such broad authority, the court held that Congress created an unconstitutional agency position. The three-judge panel of the D.C. Circuit resolved the constitutional issue by striking out the appointment clause in Dodd-Frank, thereby allowing the President to remove the director at will (as he would a cabinet secretary or similar position). On February 16, 2017, the D.C. Circuit decided to grant a rehearing of the case en banc and today (May 24, 2017 at 9:00 AM ET) the judges of the D.C. Circuit heard oral arguments.

So why should property law profs care about this? Well, the CFPB has had tremendous importance in the realm of mortgage finance—everything from imposing underwriting guidelines for home loans, to bringing enforcement actions against banks and mortgage lenders for predatory and abusive practices, to going after financial institutional related to discriminatory mortgage activities. At the core of the 2008 financial crisis was property (housing to be specific), and the CFPB was created to address the dangerous activities of lenders and various other agents with regard to how people acquired property or used property to acquire credit. This case, in short, has a lot to do with property.

There has been much speculation that President Trump desires to remove the current director of the CFPB, Richard Cordray (an Obama appointee whose term does not end until 2018). This theory is buttressed by the many comments and critiques of the CFPB lodged by various officials within the Trump transition team, including the Secretary of the Treasury, Steven Mnuchin. Obviously, based on the comments of the president and its surrogates, there is reason to believe a Trump-appointed CFPB director would roll-back many of the Cordray-lead mortgage rules and potentially allow for the same kind of easy flow of mortgage credit that characterized the pre-2008 housing market.  

The oral arguments in today’s case became available today at 2:00 PM ET here on the D.C. Circuit’s website. I wanted to spend some time here and share my impressions. To start, Theodore Olson (arguing for the unconstitutionality of the CFPB’s single director structure) had a hard time convincing Judge Griffith and some others that the CFPB’s current structure materially diminishes the power of the President of the U.S. any more than did the Federal Trade Commission in Humprey’s Executor. Olson tried to convince the court that having a single director was not the only constitutional flaw in the CFPB’s system (something that has been focused on by most commentators), but rather the “accumulation of power” in the agency head under the provisions of the Dodd-Frank Act (which would be true whether with a single director or with a multi-person commission) was also a material defect. Judge Millett stated that the constraint of picking commissioners from different political parties isn’t present here (like with the FTC or the FCC), so the president has even less restrictions on his ability to select the agency head when it comes to the CFPB. In other words, the president has more appointment leeway in selecting the CFPB director than in many other multi-member commissions (FCC, FTC, Federal Reserve) where statute requires the president to appoint someone from a particular political party or from a geographic area.

Citing to Morrison v. Olsen, 487 U.S. 654 (1988), Judge Tatel said that the authority of the independent counsel was actually much more powerful than that of the CFPB, and in that case SCOTUS said it was a constitutional structure. The judge also said that without being able to overturn Morrison and Humphrey’s Executor, there was little way for the DC circuit court to strike down the constitutional structure of the CFPB. I think that Olson indicated, in some way, that he knew the circuit court might not be able to get to the result he wanted, but that he might prevail before the Supreme Court since they could overturn the other two cases.

One of the judges summarized the case as trying to set forth the contours of Humprey’s Executor. He noted that SCOTUS in Arizona Free Enterprise Club's Freedom Club PAC v. Bennett, 564 U.S. 721 (2011) said that when faced with such a task, a court should look to history, the effect of those being regulated, and the effect on presidential power. Olson pointed out how the staggered terms of other multi-member commissions prevented the diminishment of presidential power—something that is not present with the CFPB. One of the judges pushed back and said that whereas the president can remove the CFPB director for cause or he can appoint a new person when the term is over, he will never have the chance to reappoint the entirety of any commission, and likely won’t even get a chance to reappoint a majority. Under that notion, he questioned whether this creates “a wash.” Olson placed an emphasis on the ability of the president to appoint the chairperson of most commission as being a way to reinforce the president’s executive power, even if he can’t change the ultimate majority make-up.  

Another judge on the panel also argued that the president’s power is to faithfully execute the laws, which suggests that since the president can remove an officer for cause the structure is consistent with that constitutional notion. She stated that removing someone for a policy disagreement is not what “faithfully execute the laws” means. Olson disagreed, stating that our system sets up an elected unitary president, and that a policy disagreement is intimately tied to the president’s constitutional power.

A number of the judges, prominently Judge Tatel, said that Olson needs to bring his argument to SCOTUS, because the circuit court cannot turn away from Morrison or Humphrey’s Executor.

When the CFPB’s lawyer went to the podium, some of the judges did question how far Congress could go in limiting the appointment power of the president over those that exercise executive power—asking specifically whether Congress could place a “for cause” removal restriction on cabinet secretaries. The CFPB lawyer was a bit shaky here – saying that maybe some cabinet secretaries may exercise more inherent constitutional powers of the president (state and defense) than others (like labor) that only carry out powers granted by statute.  

Some of the judges did raise some interesting hypos. For instance, one asked whether Congress could require that the President only appoint individuals to a multi-member commission who are from a political party that is different than the president’s. In other words, would that impermissibly limit the president’s power in a way that making him split appointments between political parties does not? They also asked counsel for the CFPB whether Congress giving the CFPB director a 30-year term would cause constitutional problems. The CFPB attorney said he didn’t want to speculate.

My take is that, in the end, despite the various hypos (some outlandish and some quite vexing), the general tenor of the en banc hearing was that the judges appeared to feel bound by Morrison and Humphrey’s Executor to uphold the CFPB’s single director structure as being constitutional. We’ll have to see if my reading of the tea leaves turns out to be true. On the whole, the lawyering was really excellent. Definitely worth a listen!

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