Lender Challenges CFPB’s Constitutionality

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cfpb-logoOn July 30, this blog discussed State Bank of Big Spring v. Lew, a case in which the U.S. Court of Appeals for the District of Columbia ruled on July 30 that a small Texas bank had standing to challenge the constitutionality of the Consumer Financial Protection Bureau (CFPB).

The same court was asked on August 5 by mortgage lender PHH Corporation to stay a final decision of the CFPB on constitutionality grounds.

The latter case follows the CFPB’s final decision in an enforcement action against PHH requiring the lender to pay $109 million in disgorgement. The lender was accused of illegally increasing consumers’ closing costs by requiring them to pay reinsurance premiums to PHH’s in-house reinsurance company. The CFPB classified the reinsurance payments as kickbacks.

The court granted the stay, holding PHH “satisfied the stringent requirements for a stay pending appeal.”

PHH argues the CFPB is unconstitutional because Director Richard Cordray has the sole authority to issue final decisions, rendering the CFPB’s structure to be in violation of the separation of powers doctrine. The petition states, “Never before has so much authority been consolidated in the hands of one individual, shielded from President’s control and Congress’s power of the purse.” The petition argues that the Director is only removable for cause, distancing him from the power of the President, and is able to fund the agency from the Federal Reserve System’s operating expenses, distancing him from Congress’s power to refuse funding.

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The court issued a one paragraph stay order, and it is not clear whether the motion was successful based on the constitutionality argument because PHH had also argued that Director Condray misinterpreted settled law on mortgage reinsurance and on how disgorgements are calculated.

The stay is in place pending the appeal. It will now be interesting to see whether the Court of Appeals will reach the constitutionality issue or decide the case on the legal interpretation issues. And, of course, it will be interesting to see whether future constitutionality challenges continue with regard to this powerful agency that is changing the rules for residential closings.

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2 thoughts on “Lender Challenges CFPB’s Constitutionality

  1. Why are we putting so much faith in the CFPB?

    Please evaluate my problem wholeheartedly.

    At the end of 2014 I requested guidance from Wells Fargo(WF) about my interest rate increase. This simple request has turned into a fight for honesty and having integrity when there’s a mistake. WF has fraudulently destroyed my 800+ credit score, discriminated against me, and broken several key loan servicing laws. All of the allegations against WF are supported by my documents. I want to hold WF accountable for the indiscretions against me. You may find my story and supporting documents on http://www.wffraud.com

    The CFPB truly doesn’t have control of the servicing industry. My plight tells the true story of the destruction a servicer can inflict on a person for almost 2 years.

    The CFPB has just given Wells Fargo a 60 day extension, my time has run out because of the statute of limitations. Please review my new update, I have included my resume to prove I am a real person with a real problem and no one is willing to help.

    Like

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