Client Alert

Ten Questions and Nine Answers about PHH and the Future of the CFPB Director

05 Dec 2016
This alert was also published in Law360 (12/08/2016; reprinted with permission).

The potentially explosive combination of the D.C. Circuit’s October decision in PHH v. CFPB and the outcome of the presidential election has spurred a host of questions about how the PHH litigation may proceed and about the future of the Consumer Financial Protection Bureau (CFPB) under the leadership of CFPB Director Richard Cordray.  After providing some background, this alert will discuss some of the most pressing of those questions.


In October, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit” or “Court”) handed the CFPB a major defeat, vacating a $109 million disgorgement remedy imposed on PHH for alleged violations of the Real Estate Settlement Procedures Act (RESPA). The Court held that the structure of the CFPB was unconstitutional and remanded the case for further administrative proceedings.  Specifically, the Court held that the Dodd-Frank Act’s tenure protections—which allow the President to remove the CFPB Director only “for inefficiency, neglect of duty, or malfeasance in office”[1]—violate the Constitution’s separation of powers.  The Court reasoned that these statutory provisions concentrated unilateral authority in the hands of an individual regulator without presidential oversight or the constraint of a multi-member regulatory body.  After reaching that finding of unconstitutionality, the Court concluded it need not invalidate the entire statute that created the CFPB but could instead sever the Director’s “for cause” removal protection.  Thus, post-severance the Director would be an “at-will” executive officer subject to “the ultimate supervision and direction of the President.”

In addition, the Court reached several other important conclusions, including:  (1) Section 8(c) of RESPA is a statutory safe harbor that allows captive reinsurance arrangements in exchange for “bona fide payments”; (2) the disgorgement remedy imposed on PHH by the CFPB violated fair-notice principles by retroactively applying a new interpretation of Section 8 of RESPA in contravention of long-settled industry reliance interests; and (3) the CFPB is bound by RESPA’s three-year statute of limitations in administrative proceedings.

On November 18, the CFPB filed a petition for rehearing en banc, saying PHH “may be the most important separation-of-powers case in a generation.”[2]  The CFPB argues that the panel’s constitutional ruling conflicts with Supreme Court precedent on the scope of the President’s removal authority, which the Bureau argues does not preclude Congress from creating independent agencies headed by a single director who can be removed by the President only for cause.  The CFPB also contends that the panel misinterpreted and unduly narrowed RESPA’s prohibition on referral fees and kickbacks in residential mortgage loan transactions.

Many questions have emerged regarding the road ahead—both in terms of the PHH litigation and the options available to President-Elect Trump should he want new leadership at the CFPB.  What follows are our views on a number of questions arising from this litigation.[3]

1. When will the Court decide whether to grant rehearing en banc?

In recent years, the D.C. Circuit has taken on average 49 days from the filing of the petition to decide whether to grant or deny petitions for rehearing.  But when a response is called for (as is the case here), the Court takes on average 64 days from the filing of the petition.  If the average holds here, a decision on whether to grant en banc review likely will come in early 2017, right around Inauguration Day (January 20, 2017).

2. What role, if any, will the Department of Justice play in the PHH litigation?

The U.S. Department of Justice (DOJ) has not been involved in the PHH litigation in the D.C. Circuit.  The CFPB briefed and argued the case on its own.  In response to the CFPB’s rehearing petition, however, the D.C. Circuit not only directed PHH to file a response, but also “invited” the Solicitor General to file a response expressing the views of the United States.  Directing PHH to file a response is not a surprising development in a high-profile case like this.  Requesting a brief from the United States in a case in which a federal agency is already a party, however, is not common.  And issuing the invitation directly to the Solicitor General—who does not typically appear in the federal courts of appeals—is even more unusual.  This move may reflect the Court’s view that this case merits high-level attention at DOJ.

DOJ typically defends the constitutionality of federal statutes, but it is also particularly sensitive to protecting the President’s executive authority against encroachment.  This case pits those two institutional imperatives against each other.  Accordingly, while DOJ will likely support the CFPB’s position on the constitutional question, that is not a foregone conclusion.  The responses of PHH and the Solicitor General are currently due on December 22, 2016.

Any brief the United States files could later be withdrawn by the Trump DOJ if it disagrees with the position taken in the brief.  But doing so would require overcoming the Department’s strong institutional reluctance to change the government’s litigation positions.

3. If the Court grants en banc review, what happens next?

If the Court grants en banc review, it may or may not order supplemental briefing.  But the en banc Court would almost certainly hold an oral argument—likely during the first half of 2017, unless the Court requests additional briefing, in which case oral argument might not occur until later in 2017.  If en banc review is granted without a statement limiting its scope, the entire appeal will be before the Court—including issues that were not raised in the en banc petition.  Thus, so long as an order granting en banc rehearing in PHH does not expressly limit the Court’s review, nothing would preclude the D.C Circuit from considering the fair-notice or statute-of-limitations issues addressed by the three-judge panel, even though the CFPB did not cite those issues as reasons for granting rehearing.

4. When does the mandate issue, and does that matter? 

Under Federal Rule of Appellate Procedure 41(d)(1), the CFPB’s petition for rehearing has stayed issuance of the D.C. Circuit’s mandate.[4]  If en banc review is granted, the D.C. Circuit’s rules provide that the judgment of the panel is vacated but not its opinion.  The Court would then withhold its mandate until after a decision of the en banc Court, which would adopt a new judgment.

But issuance of the mandate does not have any legal bearing on the questions that many are now asking about the constitutional and statutory status of the CFPB Director.  The mandate’s issuance has an impact on the parties to the PHH proceeding itself, but it does not alter the precedential or persuasive force of the panel’s decision.  And, as discussed below, the panel’s PHH decision, whether or not precedential, does not dictate the answer to the question of whether the Constitution gives President Trump the authority to dismiss the Director.

That said, a grant of en banc review by the full D.C. Circuit (and the further stay of the mandate that would automatically follow from that grant) could have a political impact.  That move could give the CFPB and its supporters grounds to argue against Trump Administration actions in reliance on the panel’s constitutional holding because (they would argue) the full Court’s decision to rehear the case en banc would call into question the correctness of the panel’s opinion.

5. When might the U.S. Supreme Court have an opportunity to weigh in?

Not until 2017 at the earliest.  The filing of the CFPB’s rehearing petition has tolled the time for the CFPB to file a petition for a writ of certiorari in the Supreme Court.  If rehearing en banc before the D.C. Circuit is denied, the CFPB will have 90 days from the date of denial to file a certiorari petition in the high court.  If rehearing en banc before the D.C. Circuit is granted, the en banc Court will issue a new decision, and whichever party loses will then have 90 days to file a certiorari petition from that new decision’s issuance.  Depending on the timing of PHH before the en banc court and the pace of the nomination and confirmation process, there may be a nine-member Supreme Court by the time PHH arrives there.

6. Could the CFPB file a petition for a writ of certiorari on its own?

Yes, but only with the permission or acquiescence of the Solicitor General of the United States (SG).[5]  Should the CFPB be dissatisfied with the D.C. Circuit’s disposition of the case (e.g., if en banc review is denied or if the en banc court grants review but comes to the same conclusion as the panel), it must seek consent from the SG to file a certiorari petition.  (By that time, the SG will likely be a Trump appointee.)  If the SG agrees with the CFPB’s position, he or she could file a certiorari petition on the CFPB’s behalf.  If the SG disagrees with the CFPB’s position, the SG would have several options.  Most obviously, the SG could decline to authorize a CFPB certiorari petition and therefore effectively end the case.  On the other hand, the SG has occasionally allowed other independent agencies, like the Federal Communications Commission, to defend themselves and their policies in the Supreme Court—even when the Solicitor General representing the executive branch files an amicus brief in the same case arguing against the agency’s policies.  In the PHH case, therefore, the incoming Administration could choose to allow the CFPB to seek Supreme Court review while at the same time arguing that the CFPB’s tenure protections are an unconstitutional limitation on the President’s removal authority.

Conversely, if the en banc D.C. Circuit were to disagree with the PHH panel decision and restore the penalty imposed by the CFPB, then PHH would have the option of filing a certiorari petition seeking review of that decision by the Supreme Court.

7. Does PHH by itself authorize President Trump to remove the CFPB Director?

No, but that’s not the right question.  Unless affirmed or reversed by the Supreme Court—in which case the Supreme Court’s PHH decision would be binding precedent applicable to all courts and executive branch officers, including the President—the PHH opinion does not dictate the incoming Administration’s actions vis-à-vis dismissal of the CFPB Director.  As it now stands, the PHH opinion provides important persuasive precedent on that issue, and perhaps some political cover for the incoming President, but it ultimately does not control the President’s exercise of executive authority.

The President is entitled to make his own judgment of his powers under the Constitution and to act on that judgment—subject to possible judicial review.  Presidents often base such actions on opinions from the Office Legal Counsel (OLC) at the Department of Justice, although they are not required to do so.  Here, for example, OLC in a Trump Department of Justice could opine that the tenure protections of the CFPB director are unconstitutional.  Such an opinion likely would cite the PHH panel decision as persuasive authority, but the OLC’s opinion would not be dictated by PHH.  Indeed, OLC could issue such an opinion even if the en banc D.C. Circuit had issued a decision upholding the constitutionality of the CFPB, in that case, OLC could conclude that the en banc decision was wrong.  The President could then attempt to dismiss the Director and cite the OLC opinion as support for his authority to do so.

A recent blog entry associated with a law journal covers this topic in some detail. See

As an alternative basis for removal, President Trump could follow Dodd-Frank’s existing removal provision and attempt to remove the CFPB Director for cause—in the words of the statute, “for inefficiency, neglect of duty, or malfeasance in office.”  Taking that route would not require any conclusion that the statute is unconstitutional:  the statute expressly authorizes such for-cause removals.  Such a move ordinarily would require the President to state a basis for such a for-cause dismissal, and the Director could attempt to challenge the removal in court.  See the answer to the next question.

8. If President Trump elected to remove the Director, would there be precedent for a challenge to the removal in court?

That scenario would appear to mirror the one presented by a famous separation of powers case, Humphrey’s Executor v. United States.[6]  There, President Franklin Roosevelt attempted to terminate William E. Humphrey, a Federal Trade Commission (FTC) commissioner who had been appointed by President Coolidge.  President Roosevelt based his decision on policy differences and did not claim he had a for-cause basis to remove Humphrey.  Humphrey insisted he was still an FTC commissioner, arguing that the FTC’s tenure protections forbade the President from removing him without proof of “inefficiency, neglect of duty, or malfeasance in office.”

Following Humphrey’s death, the executor of his estate sued the United States for back pay, alleging that President Roosevelt violated the FTC’s tenure protections by terminating Humphrey for reasons not specified in the statute and that he should therefore receive the salary he would have earned had he not been removed.  In response, the executive branch argued that the FTC’s tenure protections were an unconstitutional limitation on the President’s removal power.  The Supreme Court disagreed with President Roosevelt, finding it permissible for members of independent agencies to have tenure protection.

On the substance, the panel in PHH distinguished Humphrey’s Executor on the ground that it blessed independent agencies headed by multi-member bodies, but not ones like the CFPB headed by a single director.  The CFPB’s rehearing petition challenges that conclusion and argues that Humphrey’s Executor means the CFPB’s structure is constitutional.  But putting aside the question of who is right about the substantive impact of Humphrey’s Executor on PHH, that case could foreshadow a procedural path to judicial review by the CFPB Director if the incoming administration attempted to remove him without cause.

For example, the Director could file suit in his personal capacity against the United States in the Court of Federal Claims and attempt to challenge his termination by seeking back pay.[7]  In defending against such a suit, the executive branch could in turn cite the panel decision in PHH as persuasive authority for the proposition that the CFPB’s tenure protections are unconstitutional.  As noted above, however, the new Administration could take this position in litigation even if the en banc D.C. Circuit had reversed the PHH panel’s constitutional holding at that time.  Regardless of which party might prevail at the preliminary stage in the Court of Federal Claims, the decision could be appealed to the United States Court of Appeals for the Federal Circuit, which has appellate jurisdiction over the Court of Federal Claims and would not be bound by the D.C. Circuit’s PHH ruling.  Indeed, although the D.C. Circuit’s decision would likely be afforded considerable persuasive weight, the Federal Circuit would be free to decide the constitutional issue differently, thus creating a circuit conflict that only the Supreme Court could resolve.

9. Could the CFPB Director ask a court to put him back into office as part of his court challenge?

He could ask, but the court might not do so.  To be sure, the statute authorizing such a suit by dismissed federal officers in the Court of Federal Claims authorizes the officer to seek reinstatement in addition to back pay.  It is not clear, however, whether a court could or would actually be willing to provide that remedy.  The court might conclude that it was without constitutional authority to issue such an order (even if it agreed with the Director on the merits and awarded him back pay) on the theory that ordering the President to reinstate an appointed officer would itself violate the Constitution’s separation of powers.

10. How will this all shake out?

At the moment, there are simply too many contingencies flowing from the possible interaction among multiple players—the CFPB, the Director, President-Elect Trump, the new SG, and multiple courts—to make any prediction with confidence.


The authors of this alert filed an amicus brief on behalf of financial and other trade associations in support of PHH.  This alert represents the personal views of the authors only and is not presented on behalf of any client of the Firm.

[1] 12 U.S.C. § 5491(c)(3).

[2] Rehearing en banc is the process through which all, or a quorum, of the active judges sitting on a federal court of appeals review an appeal previously decided by a three-judge panel of that court.  En banc rehearing is rare.  Ordinarily, rehearing en banc will not be granted unless necessary to resolve conflicting court of appeals decisions or the case “involves a question of exceptional importance.”  Fed. R. App. P. 35(a).  In order for a case to be reheard en banc, a majority of the court’s active judges must vote to do so.  As of the date of this Alert, the D.C. Circuit has eleven active judges.  The CFPB must therefore persuade at least six of them that the PHH decision merits rehearing by the full court.

[3] Because future actions of courts, Congress, and the Administration are unknown and necessarily could result in a variety of different outcomes over the coming months, our views are presented as a general overview based on circumstances known today.

[4] An appellate court’s mandate is a certified copy of the court’s opinion, and the legal effect of its issuance is merely to return jurisdiction over the case to the lower tribunal—here, the CFPB.

[5] 12 U.S.C. § 5564(e). This  statute actually refers to the Attorney General, but the Attorney General delegates such decisions governing Supreme Court proceedings to the Solicitor General.

[6] 295 U.S. 602 (1935).

[7] 28 U.S.C. § 1491(a).



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