Tuesday, January 22, 2019

Kraninger seeks clear authority to enforce the Military Lending Act

Consumer Financial Protection Bureau Director Kathleen L. Kraninger has asked Congress to grant the CFPB clear authority to supervise for compliance with the Military Lending Act (MLA). Kraninger delivered a proposal to the House of Representatives that would amend the Consumer Financial Protection Act to explicitly state that the CFPB has nonexclusive authority to require reports and conduct examinations to assess compliance with the MLA.

Since Kraninger's confirmation as Bureau Director in December 2018, the Democratic members of the House Committee on Financial Services have urged her to commit, in writing, to resuming a consistent supervisory role over consumer protection laws, including the MLA. In their letter, the lawmakers charged that during former director Mick Mulvaney’s tenure, the CFPB discontinued enforcement, "neglecting its responsibility under the law to protect servicemembers and their families."

Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) has also criticized the CFPB for failing to monitor financial services institutions for violations of the MLA, stating, "The CFPB is neglecting its duty to protect the women and men who serve and protect our country. The CFPB has broad authorities--Congress does not need to take action, the CFPB Director does."

According to a Banking Committee minority press release, under former director Richard Cordray, the CFPB used its supervisory authority to proactively examine banks and nonbank lenders for violations of protections under the MLA, but under Mick Mulvaney the CFPB ended those examinations and said it would reconsider whether the Bureau has the authority to examine lenders for compliance with the MLA.


For more information about the CFPB and the MLA, subscribe to the Banking and Finance Law Daily.

Tuesday, January 8, 2019

Is nonjudicial mortgage foreclosure debt collection? Supreme Court hears arguments

 
Is a law firm carrying out a nonjudicial foreclosure on behalf of a client engaging in debt collection that is subject to the Fair Debt Collection Practices Act? Questions posed by the Supreme Court justices during oral arguments in Obduskey v. McCarthy & Holthus, LLC, implied sympathy for the homeowner’s position that he was protected by the FDCPA, offset by skepticism that the language of the Act actually provided that protection.
The arguments raised by the petition for certiorari focused on the interplay between two parts of the FDCPA:
  1. the definition of "debt collector" in 15 U.S.C. §1692a(6) (the "general purpose" definition"); and
  2. the special provisions included in 15 U.S.C. §1692f(6) that ban unfair practices by persons who are attempting "to effect disposition or disablement of property" (the "limited purpose definition").
The first sentence of the general purpose definition says that a person is a debt collector if he uses interstate commerce or the mail in any business that has debt collection as its principal purpose, or he "regularly collects or attempts to collect, directly or indirectly, debts owed" to someone else. However, the third sentence adds that, for the purposes of 15 U.S.C. §1692f(6), "debt collector" includes someone who uses interstate commerce or the mail in a business that has the enforcement of security interests as its principal purpose.
 
The issue presented was whether a law firm that was engaged in a nonjudicial foreclosure, but that never demanded any payment from the homeowner, was collecting a debt.
 
Effect of no payment demand. According to the Tenth Circuit opinion in Obduskey v. Wells Fargo, the bank began servicing the homeowner’s mortgage while it was still current. After the mortgage fell into default, the bank started, but halted, foreclosures several times over a six-year span. In 2014, the company hired McCarthy & Holthus to initiate a nonjudicial foreclosure. That process was started by a letter to the homeowner in which the firm said that it had been instructed to begin foreclosure and that it "may be considered to be a debt collector attempting to collect a debt." The homeowner responded with a suit claiming FDCPA violations.
 
Three U.S. appellate courts and the Colorado Supreme Court have decided that nonjudicial foreclosures constitute debt collection, the Tenth Circuit said in its opinion. However, one appellate court—the U.S. Court of Appeals for the Ninth Circuit—and a number of U.S. district courts have determined that the FDCPA is not implicated. The Tenth Circuit concluded that the nonjudicial foreclosure was not debt collection under the FDCPA because the law firm had not demanded any payment from the homeowner.
 
"[E]nforcing a security interest is not an attempt to collect money from the debtor," the appellate court said. In the process of reaching that conclusion, the court disregarded the homeowner’s argument that the end goal of any foreclosure is obtaining payment on the mortgage loan debt.
 
Homeowner’s arguments. Attacking the Tenth Circuit’s decision, Daniel L. Geyser, the homeowner’s attorney, described a statutory organization in which the FDCPA first defined who was a debt collector and then added to that group, for purposes of 15 U.S.C. §1692f(6), those persons who were not covered by the general purpose definition but were covered by the limited purpose definition because they were enforcing a security interest.
 
When challenged by Justice Alito to explain who might be covered by the limited purpose definition of 15 U.S.C. §1692f(6) but not the general purpose definition of 15 U.S.C. §1692a(6), Geyser described a traditional repossession agent who would repossess a car, deliver the car to the creditor, be paid for his services, and not care whether the creditor sold the car or not. Such a person would not be collecting any payment, but he still would be a debt collector under the limited purpose definition.
 
Justice Gorsuch, however, noted that 15 U.S.C. §1692f(6) not only bans unfair practices, it also bans threats to take banned actions. In other words, it bans talking to the affected consumer. Why was talking to the consumer not covered by the general purpose definition, making the limited purpose definition superfluous, he asked? Geyser argued that the threat might not be an effort to collect payment.
 
In essence, the justices appeared to view the two "debt collector" definitions as separate, with the limited purpose definition adding a group of persons who were not covered by the general purpose definition. On the other hand, Geyser attempted to convince them that a person could be covered by one or both definitions. Justice Sotomayor alone expressed agreement with that proposition.
 
Geyser also attempted to minimize the law firm’s claims that the homeowner’s position would set up conflicts with requirements of state law.
 
In his main argument and his rebuttal, Geyser also cited a different FDCPA section, 15 U.S.C. §1692i, which sets venue rules for collection suits. Under that section, a debt collector who is suing to enforce a security interest must sue in the judicial district where the property is located. That section says nothing about seeking a deficiency judgment, so it must mean that foreclosure constitutes debt collection, he argued.
 
Law firm’s arguments. Kannon K. Shanmugam, the law firm’s attorney, conceded in response to a question by Chief Justice Roberts that creditors don’t want to own houses, they want to be paid, and that foreclosing a mortgage is a way to be paid. However, he also said that foreclosing a mortgage is a way to be paid that is distinct from being paid by the homeowner. The foreclosure does not demand payment by the homeowner. "[N]ot everything that could lead to the elimination of a debt constitutes debt collection," he said.
 
Justice Kagan did not accept that argument, asserting instead that a foreclosure was merely an alternative method of securing payment. Justice Kavanaugh seconded that belief, noting that a foreclosure inherently communicated a "pay up or lose your home" message. "[C]ommon sense tells you this is an effort to have you repay the debt," he said.
 
Shanmugam replied that the purpose of the nonjudicial foreclosure was to foreclose on the property, not to induce a payment. He argued that, in passing the FDCPA, Congress understood that collecting debts and enforcing security interests were distinct concepts. Congress intended that persons enforcing security interests should be subject only to limited restrictions, and the combination of the general purpose and limited purpose definitions accomplished that by treating nonjudicial foreclosures as not being debt collection.
 
He did concede that a law firm seeking a deficiency judgment as part of a judicial foreclosure would be collecting a debt.
 
Federal government’s support. The U.S. government, arguing separately from the law firm, also argued that nonjudicial foreclosures are not debt collection. Assistant to the Solicitor General Jonathan C. Bond characterized this as resulting from a congressional compromise that would subject persons enforcing security interests to a ban only on a limited set of practices deemed to be unfair. The broader applicability asserted by the homeowner would upset that compromise, he argued.
The limited purpose definition made clear that Congress intended to regulate debt collectors and security interest enforcers separately, he said. Bond conceded, as had Shanmugam, that a security interest enforcer who also demanded payment would be a debt collector. However, he disagreed with the proposition that a sale of the property after repossession—or foreclosure—mattered. "If you are taking property to be used to satisfy a debt, it doesn’t matter whether you sell it or, indeed, whether anyone sells it," he said.
 
In Bond’s view, a nonjudicial foreclosure that complies with state law and does not include a payment demand is solely the enforcement of a security interest and not debt collection.
 
The case is No. 17-1307.
 
This article previously appeared in the Banking and Finance Law Daily.

Thursday, January 3, 2019

Creditor not liable for loan servicers’ RESPA loss-mitigation violations

By Katalina M. Bianco, J.D.

A mortgage loan creditor is not vicariously liable for its loan servicer’s violations of the Real Estate Settlement Procedures Act because the Act explicitly restricts liability to servicers, the U.S. Court of Appeals for the Fifth Circuit has decided. In what it termed a case of first impression in the federal appellate courts, the Fifth Circuit said that a creditor cannot be liable for a loan servicer’s failure to comply with the loss mitigation requirements of RESPA and Reg. X—Real Estate Settlement Procedures (12 CFR Part 1024). The RESPA ruling was given as an alternative to the court’s first choice—that the homeowner failed to describe an agency relationship between the bank and either of the servicers (Christiana Trust v. Riddle, Dec. 21, 2018, Elrod, J.).

Bank of America made a home-equity loan to a homeowner and later gave the servicing rights to Ocwen Loan Servicing. A subsequent assignee of the loan shifted the servicing rights to BSI Financial Services. When the assignee filed a foreclosure suit, alleging that the homeowner had not made her payments, the homeowner filed a third-party complaint against Bank of America and the two servicers claiming that she had filed a loss mitigation application that had not been considered as Reg. X required.

The homeowner’s claims were dismissed by the U.S. district court judge, and she appealed.

No agency relationship. Vicarious liability requires an agency relationship, the appellate court said, and the homeowner’s third-party complaint simply failed to describe such a relationship between Bank of America and either of the two servicers. A person who provides services under a contract is not necessarily an agent of the recipient of those services, the court pointed out. An agent acts under a principal’s control, while a contractor might not, and the homeowner had not claimed the bank had any control over the servicers’ actions.

No vicarious liability. Even if the homeowner had described an agency relationship, RESPA and Reg. X still would have protected the bank from any liability for the servicers’ violations, the court then said. While the statute and the regulation both impose loss-mitigation consideration duties, both explicitly restrict to servicers any liability for failing to carry out those duties.

Both the regulation and the statute place loss-mitigation compliance duties only on servicers, the court pointed out. Reg. X defines a servicer as a person who receives payments from the mortgagor and distributes those funds as required by the loan. The bank did not engage in those activities, so it was not a servicer, the court reasoned.

When Congress intended RESPA to apply more broadly, it used broader language, according to the court. For example, the act said that "no person" could accept kickbacks or unearned fees. However, the loss mitigation duties applied explicitly only to servicers. RESPA’s text "plainly and unambiguously" imposed liability only on servicers and rejected any vicarious liability for creditors, the court decided.

One member of the three-judge panel did not join in the RESPA determination because she felt the failure to describe an agency relationship was adequate to decide the case. However, the opinion added that, in the Fifth Circuit, alternative holdings are not obiter dictum; rather, they are binding precedent.

The case is No. 17-11429.

For more information about RESPA and Reg. X court developments, subscribe to the Banking and Finance Law Daily.

Friday, December 21, 2018

FDIC closes year with series of regulatory reform adoptions and proposals

By Andrew A. Turner, J.D.

The Federal Deposit Insurance Corporation closed the year by issuing a variety of rulemaking adoptions and proposals, some in concert with other regulators. Highlights are listed below.

Brokered deposits. The FDIC took two actions related to brokered deposits. It amended its regulations on brokered deposits and interest rate caps to except a capped amount of reciprocal deposits from being treated as brokered deposits for certain banks. The agency also, through an Advance Notice of Proposed Rulemaking, asked for information to be used in a broader review of brokered deposit and interest rate cap rules.

Current expected credit losses implementation. The Office of the Comptroller of the Currency, Federal Reserve Board, and FDIC have revised regulatory capital rules to address changes to credit loss accounting under a new accounting standard, including banking organizations’ implementation of the current expected credit losses methodology (CECL). Banking organizations have been given the option to phase in over a three-year period the day-one adverse effects of CECL on the banking organization’s regulatory capital ratios.

The final rule also revises the agencies' stress testing rules and regulatory disclosure requirements to reflect CECL. Conforming changes were made to other regulations that reference credit loss allowances. The final rule is effective on April 1, 2019, but a banking organization may choose to adopt the final rule starting as early as first quarter 2019.

Volcker Rule restriction easing. The federal banking, securities, and commodities regulatory agencies are proposing changes to their Volcker Rule regulations that will exclude small banks with limited trading activities and permit some investment advisors to share a name with a hedge or private equity fund they advise.

Stress test requirements. The FDIC and OCC are proposing to amend their stress test regulations to: increase the asset threshold to $250 billion, up from the current $10 billion; reduce the requirement for annual tests; and reduce the necessary scenarios to two, down from the current three.

Deposit insurance assessment system. The FDIC issued a proposal that would amend its deposit insurance assessment regulations to apply the community bank leverage ratio (CBLR) framework to the deposit insurance assessment system. The primary objective is to incorporate the alternative measure of capital adequacy established under the CBLR framework into the current risk-based deposit insurance assessment system in a manner that: (1) maximizes regulatory relief for small institutions that use the CBLR framework; and (2) minimizes increases in deposit insurance assessments that may arise without a change in risk.

To assist banks in understanding the impact, the FDIC plans to provide on its website a spreadsheet calculator that estimates deposit insurance assessment amounts under the proposal.

Management interlocks. The federal banking regulatory agencies are proposing to change their management interlock rules to ease the burden on community banks. Currently, an individual who has a management position or is a director at an institution with more than $2.5 billion in assets cannot hold a comparable position at an unaffiliated institution with more than $1.5 billion in assets. The proposal would increase both thresholds to $10 billion.

For more information about FDIC regulatory actions, subscribe to the Banking and Finance Law Daily.

Tuesday, December 18, 2018

Debt collector’s ‘validation notice’ placement in letter did not violate FDCPA

By Thomas G. Wolfe, J.D.

In a December 2018 opinion, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit ruled that a debt collector’s placement of its “validation notice” in a collection letter to a consumer did not overshadow the consumer’s rights under the federal Fair Debt Collection Practices Act (FDCPA), nor did the letter misrepresent the importance of the validation notice required by the FDCPA. The consumer had claimed that the collection letter to her violated the FDCPA because the letter stated that “additional important information” was on the back of the first sheet of the letter, but the consumer-rights validation notice appeared on the top of the second sheet of the letter. In affirming the dismissal of the consumer’s proposed class-action lawsuit (O’Boyle v. Real Time Resolutions, Inc.), the Seventh Circuit panel determined that, from the standpoint of an “unsophisticated consumer,” the collector did not provide the validation notice in a manner that could be construed as false, deceptive, misleading, or confusing in violation of the FDCPA.

Further, the federal appellate court upheld the lower court’s denial of the consumer’s request to amend her complaint, determining that the consumer’s proposed amendments would not transform her original claim “into the realm of plausibility” and would cause “undue delay and unfair prejudice” to the debt collector.

Collection letter. In April 2017, Real Time Resolutions, Inc. (RTR), a debt collector, sent its first letter to the consumer to collect an alleged credit-card debt from her. In the middle of the front sheet of the first page, the letter communicated that this “is an attempt to collect a debt, and any information obtained will be used for that purpose.” Farther down on the front sheet, a box directed the consumer to view the reverse side of the first sheet, stating “Please see the back of this page for additional important information regarding this account.”

The back side of the first sheet of the letter provided information about particular consumer-rights notices in 10 states, including the consumer’s home state of Wisconsin, and prominently indicated that the applicable listing “is not a complete list of rights consumers may have under state and federal law.” Then, on the top front of the second sheet (page 2) of the collection letter, the FDCPA-required validation notice appeared: “Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days of receiving this notice, this office will obtain verification of the debt or obtain a copy of a judgment if applicable and mail you a copy of such verification or judgment. If you make a written request to this office within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.”

According to the Seventh Circuit’s opinion, the text of RTR’s validation notice “is clear, prominent, and readily readable. The font is normal in shape and size—essentially the same font as most of the letter.” Still, as pointed out by the court, while the front of the first page directs the reader to the back of that page for “additional important information,” that additional important information does not include the validation notice, which appears instead on the front top of the second page.

Complaint. In her proposed class action against RTR, the consumer alleged that the debt collector’s letter would mislead “the unsophisticated consumer” by telling the reader that important information was on the back of the first page, but instead providing the FDCPA-required validation notice on the front of the second page. According to the complaint, the letter from RTR violated the FDCPA (15 U.S.C. §§ 1692e and 1692g) by: “overshadowing” the consumer’s FDCPA rights; (ii) failing to communicate her FDCPA rights effectively; (iii) misdirecting a consumer’s attention away from the validation notice; and (iv) causing the misdirection to falsely and misleadingly represent that the validation notice was unimportant.

After the federal trial court declined to certify the proposed class, dismissed the FDCPA claims, and refused the consumer’s request to amend her complaint, the consumer appealed to the Seventh Circuit.

FDCPA provisions. Under section 1692e of the FDCPA, a debt collector is prohibited from using any “false, deceptive, or misleading representation or means in connection with the collection of any debt.” Meanwhile, section 1692g of the FDCPA requires debt collectors to notify consumers of their validation rights and sets forth the rules pertaining to that notification.

Court’s ruling. After noting these applicable FDCPA provisions, the Seventh Circuit asserted, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.”

In applying the pertinent “unsophisticated consumer” standard in the case, the court noted that an “unsophisticated consumer can be expected to read page two of a two-page collection letter.” In the court’s view, the scanning of the material on the reverse side of page one of the letter was a temporary “speed bump, not a road barrier,” to the validation notice at the top of page two; moreover, the validation notice itself was a “continuation of the letter.” The Seventh Circuit agreed with the lower court that “a consumer who reads the front and back of the first page of a short letter and then completely disregards the second page has not read the letter with care.”

Underscoring that RTR’s validation notice still occupied “a prominent place” in the letter even though it did not appear on the reverse side of page one, the court determined that the collector did not imply that the validation notice was unimportant by referencing other important information on the reverse side. Indeed, the reverse side of the first page discussed the consumer’s rights under Wisconsin law, which was pertinent to the consumer, and communicated that it was not a complete list of all rights consumers might have under federal law. Contrary to the consumer's FDCPA claims, “not even a significant fraction of the population would be misled” by RTR’s collection letter, the court concluded.

For more information about court opinions impacting the financial services industry, subscribe to the Banking and Finance Law Daily.

Friday, December 14, 2018

FDIC initiatives seek to improve deposit insurance application process

By Andrew A. Turner, J.D.

The Federal Deposit Insurance Corporation is looking for information on how it can improve the deposit insurance application process and on factors that discourage potential applicants from beginning or finishing applications. Specific aspects under review include improvements that might benefit community banks and improvements in technology. The agency also has created a process that will allow potential applicants to request a review of a draft deposit insurance proposal.
 
As part of its efforts to increase transparency, efficiency, and accountability, the Federal Deposit Insurance Corporation has announced multiple initiatives and resources related to the deposit insurance application process for organizers of de novo banks. The changes are intended to promote a more transparent, streamlined, and accountable process for all applications submitted to the agency. FDIC Chairman Jelena McWilliams stated that a pipeline of new banks “is critical to the long-term health of the industry and communities across the country. The application process should not be overly burdensome and should not deter prospective banks from applying.”
 
The FDIC requested comments on all aspects of the deposit insurance application process, including ways in which the FDIC could or should support the continuing evolution of emerging technology and Fintech companies; aspects of the application process that may discourage potential applications; possible changes to the application process for traditional community bank proposals; and other suggestions for improving the effectiveness, efficiency, or transparency of the application process. Comments on the Notice and Request for Information are due by Feb. 11, 2019.
 
The FDIC has also created a new, designated mailbox as an additional means by which bankers, applicants, and other interested parties may pose questions regarding specific applications or the application process in general.
 
Updated publications. The FDIC has also updated two publications related to the deposit insurance application process. The publications, Applying for Deposit Insurance—A Handbook for Organizers of De Novo Institutions, which was developed to facilitate the process of establishing new banks and originally issued on Dec. 22, 2016, and Deposit Insurance Applications Procedures Manual, which was issued for public comment on July 10, 2017, provide comprehensive instruction to staff regarding the deposit insurance application process. Together, the documents address the informational needs of organizers and provide comprehensive instruction to FDIC staff.
 
Draft insurance review proposal. The FDIC announced that it is establishing a process to allow prospective organizers the option to request FDIC review of a draft deposit insurance proposal prior to filing an official application. The FDIC will review draft proposals to identify potential issues, provide preliminary feedback, and work with organizers on their submissions before submitting a formal application. The draft review process is intended to provide the FDIC and organizing groups the opportunity to better understand and work through possible challenges with a proposal through a collaborative process before a formal application is filed. The agency noted that feedback is limited to matters raised in the review of the submitted materials.
 
Review requests should be made in writing to the appropriate FDIC regional office and should be accompanied by a draft application filing. The FDIC expects to provide interim feedback to the organizers as soon as practicable, but no later than 30 days after receiving a draft proposal, and to communicate overall feedback within 60 days of receipt.
 
Timeframe guidelines. The FDIC has also updated and is republishing its timeframe guidelines for applications. The FDIC is republishing its timeframe guidelines for processing applications, notices, requests, and other filings submitted on behalf of existing and proposed institutions and other parties.
 
According to the FDIC, the timeframe guidelines apply to filings processed by Regional Offices under delegated authority. The timeframe guidelines do not apply to filings that:
  • raise legal or policy issues;
  • establish or change FDIC policy;
  • could attract unusual attention or publicity; or
  • involve an issue of first impression.
 
For more information about federal deposit insurance issues, subscribe to the Banking and Finance Law Daily.

Thursday, December 13, 2018

Justice Department tells Supreme Court CFPB organization is unconstitutional

A Justice Department brief filed in response to the petition for certiorari in a case addressing the constitutionality of the Consumer Financial Protection Bureau concedes that the Justice Department and the Bureau still have different points of view on the issue. The CFPB, to date, maintains that its organization under the Dodd-Frank Act is constitutionally valid, the Justice Department says. However, according to the Justice Department brief, the Bureau’s organization is unconstitutional because an independent agency led by a single director who can be removed by the president only for cause infringes on the president’s power to ensure that federal laws are faithfully executed. The petition for certiorari is State National Bank of Big Spring v. Mnuchin (No. 18-307).

State National Bank of Big Spring was an early challenger to the CFPB’s organization, filing suit in 2012. By early 2018, the issues in the bank’s suit had been narrowed to the constitutionality question. When the U.S. Court of Appeals for the District of Columbia Circuit, in an en banc opinion in PHH Corp. v. CFPB, resolved that question in favor of the CFPB, the parties to the bank’s suit agreed the U.S. district judge hearing the suit could not reach a contrary opinion and agreed to an order of dismissal.

The bank’s subsequent appeal to the D.C. circuit appellate court was rejected, setting the stage for the bank’s Supreme Court petition.

Effect of PHH Corp. The D.C. Circuit three-judge panel that initially decided PHH Corp. v. CFPB determined that the single-director organization was unconstitutional. However, rather than completely striking down the Bureau as the company asked, the panel decided to sever the Dodd-Frank Act section that provided the director could be discharged only for cause. The constitutionality problem would be solved by treating the Bureau as an executive branch agency whose director could be discharged at the president’s discretion.

However, the full circuit overturned that result. According to the en banc majority opinion, the Dodd-Frank Act did not violate constitutional separation of powers principles.

The PHH Corp. decision was not appealed to the Supreme Court.

Justice Department argument. The Justice Department prefers the result reached in PHH Corp. v. Corp. by the three-judge panel and the opinion written by Judge, and now Associate Justice, Kavanaugh. This approach, essentially a middle ground between eliminating the Bureau and continuing it as it currently is constituted, would allow the CFPB to function under the president’s control.

According to the brief, the separation of powers issue is important and deserves Supreme Court review, but in a different case. One problem is that Justice Kavanaugh probably would not participate in the decision due to his earlier involvement as an appellate court judge. Having the full court participate would be preferable, the Justice Department says.

Additionally, the nature of the challengers raises a jurisdictional problem. Two petitioners are associations that are not regulated by the CFPB. The bank, due to its size, is supervised by the Office of the Comptroller of the Currency, not the Bureau, and the Bureau apparently has never tried to assert any supervisory authority over the bank. The petitioners’ standing to sue "is sufficiently questionable to present a significant vehicle problem," the brief says.

 The Justice Department maintains that the Dodd-Frank Act, as written, violates the Constitution, and the brief relies heavily on the points made by Justice Kavanaugh in his appellate court opinion—the for-cause removal clause restricts the president’s powers; the single-director organization lacks the advantages of a multi-member commission that would justify the removal restriction; the single-director organization is "a relatively novel innovation"; and there would be no limit on other, future single-director agencies that could infringe further on presidential removal authority.

Severing the for-cause restriction would resolve the problem while doing the least violence to the Dodd-Frank Act, the Justice Department continues. The Act includes a severability clause, and there is no indication that Congress would have wanted the Bureau to disappear without the removal restriction.

Representation complication. The brief also directs the Court’s attention to the question of who would present the argument in favor of the CFPB’s constitutionality. The Justice Department disagrees with the result of the PHH Corp. suit and thus will not argue in favor of constitutionality. In such a case, the Supreme Court could appoint an amicus curiae; however, there is another available route. Under the Dodd-Frank Act, the CFPB can—with Justice Department consent—represent itself before the Court.

As a result, the Justice Department is recommending that if the Court grants certiorari, it should delay appointing an amicus curiae until newly approved CFPB Director Kathy Kraninger has an opportunity to decide whether the Bureaus intends to defend the D.C. Circuit judgment and the Acting Solicitor General can decide whether to permit the Bureau to do so.
This story previously appeared in the Banking and Finance Law Daily.