//  4/13/17  //  Commentary

In our last post, we summarized a landmark constitutional challenge to the CFPB currently pending before the en banc D.C. Circuit, noting that DOJ’s position in that case is squarely at odds with a position they've taken in a similar case currently unfolding in Texas. Here, we offer some thoughts on what comes next in the CFPB case.

In short: it’s hard to predict.

On the litigation front, the en banc D.C. Circuit will hear oral argument next month, with Ted Olson appearing for PHH. Those who attend the argument will get to witness the relatively rare spectacle of competing presentations by federal government lawyers.

The panel decision was extreme, and an outlier. The full court is far less conservative than the panel, and there is a good chance that it will take a very different view of the agency’s constitutionality. But it could take a year or more to produce a decision, and there’s no guarantee that it will even reach the constitutional question. As Judge Henderson pointed out in a dissent at the panel stage, there’s a strong argument that the panel “unnecessarily reach[ed] PHH’s constitutional challenge, thereby rejecting one of the most fundamental tenets of judicial decisionmaking.” The court could conclude that the CFPB misinterpreted the Real Estate Settlement Procedures Act (the statute on which the underlying enforcement action was premised) and on that basis sustain PHH’s appeal.

If the D.C. Circuit does decide the constitutional question, the losing side will likely seek Supreme Court review. There are somewhat murky questions about how the CFPB’s independent litigating authority operates in that scenario. Given the end of Cordray’s term in July 2018, however, the issue of Trump’s ability to replace him is likely to become moot as the litigation makes its way through the courts. The legal questions surrounding the agency’s structure and the president’s removal authority might remain, but their practical significance for Cordray will go away. At this point, a win for the CFPB would, ironically, protect Trump’s designated director from removal several years into a future administration—an administration that might be far more supportive of the agency’s mission.

On the political front, Trump would be wise to hold his fire. Despite the lobbyists’ best smear efforts, Americans support the work that the CFPB has done under Cordray’s leadership. In June 2016, a bipartisan poll found that seven out of ten voters—81% of Democrats and 59% of Republicans—approve of the CFPB, after hearing a description of its work and purpose. And after hearing detailed arguments for and against the bureau’s work, just 20 percent of voters viewed the CFPB as an example of unaccountable bureaucracy. In December, a Morning Consult poll found that more than half of Trump voters wanted the new administration to either expand the CFPB’s power, or leave the agency alone.

Both before and after the election, Trump repeatedly promised to “dismantle” Dodd-Frank, including the CFPB, vowing that he would “get rid of it.” More recently, his White House has called the agency “unaccountable and unconstitutional.” And, since taking office, Trump has faced repeated calls from Republicans to immediately fire Cordray.

But, as hard as it may be to believe, there’s reason to think that Trump and his key advisors on this issue (Treasury Secretary Steven Mnuchin and economic advisor Gary Cohn) are taking a more cautious approach than their counterparts on the Hill would like. A little-noticed article in the American Banker reported on a recent meeting between Trump and community bankers at the White House. “At one point,” according to the report, “Trump expressed to the group that many had urged him to oust Cordray, but the president was not sure it was worth the political backlash. But Trump was apparently under the impression that Cordray’s term would be up soon. Informed by [Mnuchin] that Cordray’s term lasts until July 2018, Trump asked whether anything could be done before then. Cohn said he and Mnuchin were working on the issue, while raising the prospect that Cordray could voluntarily depart to run for office in his home state of Ohio, according to participants in the meeting.”

Stay tuned.

Full disclosure: We’re not neutral here. We’ve represented both consumer groups and financial-regulation scholars in the D.C. Circuit litigation, and one of us is a former senior counsel at the CFPB.


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