Two legal experts told SubPrime Auto Finance News that they were not surprised when the U.S. Court of Appeals for the District of Columbia Circuit last week granted a rehearing request for a case involving the Consumer Financial Protection Bureau.

Still, both Hudson Cook chairman Michael Benoit and Terry O’Loughlin, who is the director of compliance for Reynolds Document Solutions, described how noteworthy the next development will be when oral arguments before the en banc court will be heard on May 24.

“I am not surprised even though it is relatively unusual for cases to be heard en banc,” O’Loughlin said. “It is not favored since convening a full panel of active judges consumes a considerable amount of time and resources of the court. It is reserved where there may be a conflict in rulings, to establish uniformity, or the proceeding involves a question of exceptional importance. In this case it clearly is the latter.

“This case involves a significant constitutional issue: can an independent agency exercising substantial authority be headed by a single person?  It has never happened,” he continued. “But there are also other conflicts of law, such as the status of administrative judges, which needs to be addressed.”   

The entire matter stems from a case in which the initial decision reached last October called the CFPB “unconstitutionally structured.” The case pit the regulator against PHH Corp., a Mount Laurel, N.J.-based finance company that operates in the mortgage space.

It involved a three-judge panel of the court, which ruled the CFPB’s structure was constitutionally flawed and that its director, who currently is Richard Cordray, should be removable at the will of the president.

Both Benoit and O’Loughlin pointed out that the Dodd-Frank Act currently stipulates that the director may only be removed “for cause.” In granting the petition asked for by the CFPB, Benoit noted the court ordered that the three-judge panel’s ruling last October be vacated.

“When you request a rehearing en banc, it’s rehearing of the same case in the same court so the original decision goes away. It’s vacated because they’re not reviewing their own decision,” Benoit said.

“Because they got the hearing en banc, that wipes out the decision. It’s like it never happened. They’re going to start over and hear it again,” Benoit added.

The appeals court also said it is asking case participants to answer these questions:

— Is the CFPB’s structure as a single-director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

— May the court appropriately avoid deciding that constitutional question given the panel's ruling on the statutory issues in this case?

— If the en banc court concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

“The fundamental rule of judicial restraint is that prior to reaching any constitutional questions, federal courts must consider non-constitutional grounds for decision.  These questions are an attempt to avoid the larger constitutional issue regarding whether Richard Cordray, and the organization of the CFPB, are unconstitutionally organized. These are intriguing questions,” said O’Loughlin, who spent more than a dozen years with the Florida attorney general’s office before joining Reynolds and Reynolds.

Benoit is one of the closest watchers of CFPB developments within the Hudson Cook legal team so he called the move coming out of the appellate court “a pretty big deal.”

He continued by saying, “It is very interesting because this is a unique situation where we have an agency that’s referred to in a statute as an executive agency but then it has a single director who can’t be fired at will by the president. In every other executive agency, the president can fire the appointed leaders who work at the pleasure of the president.

“The CFPB functionally operates as an independent agency and historically independent agencies have been led by commissions rather than a single person,” Benoit said. “The rationale behind that is that these are politically balanced commissions so that when you have a change in administration or a change in leadership, you don’t have these wild swings in policy and interpretation of the law. You don’t have the see-saw effect that I think will be something we see from the CFPB when Richard Cordray is ultimately replaced or until we move to a commission structure.”

SubPrime Auto Finance News asked Benoit and O’Loughlin to project what might happen when the rehearing occurs in May and what finance companies should do in the meantime.

“If I had to look in my crystal ball, I would think that they would still rule in favor of PHH, but they’ll do it on statutory grounds and not on constitutional grounds,” Benoit said.

O’Loughlin added, “Until the court renders a decision, it is business as usual with the CFPB since the original judgment was vacated. In other words, the CFPB’s authority remains intact for now. 

“Finally, it wouldn’t be surprising if this case ultimately is heard by the Supreme Court, since the en banc decision is likely to be appealed regardless of the result,” O’Loughlin went on to say.