Hudson Cook partner Lucy Morris told SubPrime Auto Finance News she wasn’t surprised the U.S. Court of Appeals for the District of Columbia Circuit immediately smelled the political aroma during oral arguments as the 11-member en banc panel assembled for rehearing of the case questioning the constitutionality of the Consumer Financial Protection Bureau.  

Morris — a founding member of the CFPB Implementation Team before returning to private practice — explained in an alert from Hudson Cook that this case stems from a $109 million penalty levied by the CFPB against PHH Corp. for violations of the Real Estate Settlement Procedures Act (RESPA). But Morris noted this matter, initially ruled on last October by a three-member panel, has “morphed into an existential crisis for the bureau.”

Morris went into more detail about why the court’s thinking that this case is more political rather than constitutional didn’t trigger any surprise.

“It didn’t surprise me simply because the CFPB has been a political hot button since day one and continues to be, as you know, very political, with people on both sides of the aisle feeling very strongly about the bureau. There is the CHOICE Act. We have the change in administration. We’re in a very political environment, and the court was well aware of the political environment, well aware that this is a young agency and this case is really challenging the very structure of the agency,” said Morris, who also spent more than 20 years at the Federal Trade Commission.

“It didn’t surprise me that the court recognized the political overlay,” she continued during a conversation this week with SubPrime Auto Finance News. “I think what the court was saying is, that’s not the relevant inquiry. The relevant inquiry is whether there is a constitutional defect in how the agency is structured. The court was very focused on that question and whether the unique structure of the CFPB, does it diminish the power of the president more than similar agencies, like the FTC, where the Supreme Court has upheld similar for-cause provisions.

“The court was aware of the political environment but focused on the legal, constitutional question,” Morris went on to say.

While the oral arguments took place just before Memorial Day weekend, it might be the holiday season, if not into 2018, before an opinion is released.

“Certainly not just a few weeks, it will take months,” Morris said when asked how quickly en banc matters are often resolved. “I think it could be later this year or early next year. We have an en banc review. There were 11 judges on the panel so it will take some time to have an opinion come from the court.”

In the alert on Hudson Cook’s website, Morris explained the primary issue before the 11-member panel was whether the CFPB's structure as a single-director independent agency is consistent with Article II of the Constitution. And, if not, Morris noted whether the proper remedy is to sever the for-cause provision of the CFPB’s enabling statute.

When asked about how eager the entire finance industry is for the next development in this case, Morris offered a two-part response.

“Given the tenor of the oral arguments, and the questions that were being asked, my sense is that the court is likely to rule that the agency is constitutionally structured,” Morris said. “Given that likely outcome, I don’t know if the finance industry is as eager as it once was, because some had hoped that they would essentially hold the same as the three-judge panel and sever the for-cause provision and allow the president to fire director Cordray. Now it doesn’t appear that this is where this court is headed.

“But I think the finance industry is eager for other guidance from this case,” she continued. “The statute of limitation issue is very important on a going-forward basis. Is there a statute of limitations in CFPB administrative actions? The prior three-judge panel said there is and rejected the CFPB’s argument on that. I think there was one question on that in the latest oral argument. That’s an issue that would be very helpful to get resolved.”