D.C. Circuit Allows Challenges to the CFPB’s Constitutionality to Proceed: Separate Panels Reverse District Court Dismissal of Texas Bank’s Challenges on Standing and Ripeness Grounds and Grant Mortgage Servicer’s Motion to Stay CFPB Action Pending Judicial Review

Sullivan & Cromwell LLP - August 7, 2015

On July 24, 2015, a panel of the U.S. Court of Appeals for the D.C. Circuit held that State National Bank of Big Spring (the “Bank”), a Texas bank with total assets of approximately $313 million, can challenge the constitutionality of the Consumer Financial Protection Bureau and the recess appointment of its director, Richard Cordray.  In so doing, the D.C. Circuit overturned, in part, a decision of the U.S. District Court for the District of Columbia, which dismissed the Bank’s claims on lack of standing and ripeness grounds.   Unless further review is sought, the District Court must now consider the merits of the Bank’s challenges.  Just over a week later, on August 3, 2015, a different panel of the D.C. Circuit granted a motion by PHH Corporation, a mortgage servicer, and certain affiliates to stay pending judicial review of Director Cordray’s June 4, 2015 administrative decision and final order finding that PHH illegally referred consumers to mortgage insurers in exchange for kickbacks and ordering injunctive relief and disgorgement.  In both the motion to stay and separate statement of issues to be raised on appeal, PHH indicates that it too intends to challenge, among other things, the constitutionality of the CFPB’s structure.   In granting PHH’s motion for a stay, the D.C. Circuit concluded that PHH “satisfied the stringent requirements for a stay pending appeal.  Although it is impossible to gauge the ultimate outcome of either case, success on the merits by the Bank or PHH could have significant implications for institutions regulated by the CFPB.