May 28, 2022

Volume XII, Number 148

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May 27, 2022

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May 26, 2022

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CFPB Seeks Reconsideration of PHH Opinion

A panel of the D.C. Circuit Court of Appeals ruled earlier this year that the provision of the Dodd-Frank Act that established that the CFPB Director could be fired only “for cause” was unconstitutional.  The Bureau filed a petition on November 18 asking the Court of Appeals to reconsider that ruling en banc.  The petition is here.

The Bureau’s petition characterizes the panel’s constitutional holding as “dramatic and unprecedented,” creating “what may be the most important separation-of-powers case in a generation.” In short, the Bureau notes that the Supreme Court has allowed Congress to establish independent agencies with leaders who may only be fired “for cause,” and argues that a single-director independent agency deserves the same treatment.

The Bureau also takes vigorous exception to the Court of Appeal’s ruling on the Real Estate Settlement Procedures Act (RESPA) issues that formed the basis of its substantive claims against PHH.  The Bureau repeatedly characterizes captive reinsurance agreements as kickbacks, and argues that they may violate RESPA even if the mortgage insurers pay only fair market value for the reinsurance.

If the Court of Appeals is considering granting the petition, it will give PHH an opportunity to file a response.  There is no schedule for the Court’s resolution of the petition.  The petition will be granted if a majority of the D.C. Circuit’s judges who are in regular active service and who are not disqualified order that the case be reheard en banc.  Until such time as the Court of Appeals rules on the petition, the mandate that would normally issue from the panel’s ruling is stayed.

While the PHH litigation continues, another federal court, in the Central District of California, has already found the D.C. Circuit’s opinion persuasive, and ruled in the CFPB’s lawsuit against D&D Marketing that the Director is subject to direct removal by the President.

© 2022 Covington & Burling LLPNational Law Review, Volume VI, Number 327
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About this Author

 Eric J. Mogilnicki,litigation attorney, Covington Burling, Law Firm
Partner

Combining his four years’ experience at the center of some of the nation’s most critical public policy debates as Chief of Staff to the late Senator Edward M. Kennedy, and his more than 20 years of experience advising and representing financial institutions, Eric Mogilnicki focuses his practice on assisting financial services clients with investigations, examinations and enforcement actions by government regulators, including the CFPB, FTC, OCC, and FDIC. Over the past six years, Mr. Mogilnicki has been a national leader within the private bar on CFPB enforcement and policy issues. His...

202-662-5584
Jason Grimes, corporate lawyer, Covington
Associate

Jason Grimes is an associate in the firm’s financial institutions and futures and derivatives practice groups. He advises clients on a wide range of regulatory matters, including compliance with various state and federal banking laws, and compliance with the Commodity Exchange Act.

Representative Matters

  • Advised a CFTC-registered swap dealer on compliance issues related to trading on swap execution facilities
  • Advised a major financial institution in connection with the treatment of non-deliverable...
202-662-5846
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