By Douglas J. Hajek

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Congress authorized the CFPB with the passage of Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Under Dodd-Frank, the CFPB is headed by a single director, appointed by the president, with the advice and consent of the Senate and removable by the president only for cause. It is funded by the Federal Reserve without congressional appropriation or review. CFPB’s director, Richard Cordray, took office under a recess appointment.

Two cases in D.C. Circuit Court of Appeals will eventually have a lot to say about CFPB’s future.

State National Bank of Big Spring (the “Bank”) v. Lew

The Bank, a $330 million institution which operates a remittance business regulated by the CFPB, challenged the constitutionality of the agency on the basis that (1) it is headed by a single director rather than by multiple members as required for independent agencies, (2) its broad delegation of authority to the CFPB violates the non-delegation doctrine, and (3) the recess appointment of CFPB’s director was unconstitutional. The district court dismissed the bank’s challenge and held that the bank did not have standing, and that its claims were not ripe.

In July 2015 the D.C. Circuit Court of Appeals reversed, concluding that being regulated by the CFPB did indeed confer standing, and that the claim is ripe because regulated parties generally need not “bet the farm” and violate the law in order to challenge the legality of the regulating agency. So the district court must now consider the merits of the bank’s challenges.

While the appeal was pending on the bank’s claim that Cordray’s recess appointment was unconstitutional, the U.S. Supreme Court decided National Labor Relations Board v. Noel Canning, a case challenging the president’s appointments of three NLRB commissioners. In Noel Canning, the Court ruled that the appointments, ostensibly recess appointments, were invalid as such because they occurred during a three-day intra-session break while the Senate claimed to be “in session” and retained the power to conduct business. The Court held that “for purposes of the Recess Appointments Clause, the Senate is in session when it says it is, provided that, under its own rules, it retains the capacity to transact Senate business.”

The D.C. Circuit concluded that the bank could challenge Cordray’s recess appointment because it comes squarely within the holding of Noel Canning. But unlike the NLRB, Cordray was eventually confirmed by the Senate, following which he affirmed and ratified all actions he had previously undertaken as a recess appointee. The D.C. Circuit Court left it to the district court to decide whether these differences lead to a different result than in Noel Canning.

In the Matter of PHH Corp., et al.

In August 2015, the D.C. Circuit Court granted a motion by PHH Corp. and certain affiliates to stay pending judicial review of Director Cordray’s order finding that PHH violated RESPA each time it accepted a kickback on or after July 21, 2008, thereby increasing the disgorgement penalty to $109 million from the $6.5 million ordered by the administrative law judge.

While Cordray’s order increased the ALJ’s penalty by nearly 17-fold, Cordray and the ALJ agreed that no statute of limitations applies when the CFPB enforces RESPA in an administrative proceeding rather than in the courts. (The CFPB recently took the same position in an administrative action against Integrity Advance.) This holding is highly significant, because the Dodd-Frank Act allows the CFPB to enforce laws administratively or in court and obtain the same remedies.

If the CFPB prevails, the agency could potentially challenge a range of practices (e.g., unfair, abusive or deceptive acts or practices) under other laws or authority based on alleged violations going back even beyond July 21, 2011, the effective date of its enforcement authority.

Why It Matters

If Congress’ delegation of authority to the CFPB or the recess appointment of its director were deemed unconstitutional, every CFPB action would be subject to challenge. Such a result seems unlikely. Alternative possible outcomes might include court-imposed limits on the CFPB’s authority to remedy constitutional difficulties – either through interpretation of Dodd-Frank or by invalidating and severing certain of its provisions. Pending legislation could remedy the CFPB’s constitutional defects, but would not necessarily validate decisions made by a Director with an invalid appointment or while some aspect of the CFPB was otherwise unconstitutional.

Stay tuned.

Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit