PHH v CFPB: PHH and U.S. Solicitor General Respond to CFPB’s Petition for En Banc Review

On December 22, PHH filed its brief opposing the CFPB’s petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. PHH argued that the case is not worthy of review by the full D.C. Circuit because, although the majority of the panel determined that the CFPB’s structure violated the constitutionally-mandated separation of powers, that “conclusion, which horrifies the CFPB, simply means that an agency of the Executive Branch will be answerable to the Chief Executive.” With respect to the panel’s unanimous decision that the CFPB incorrectly interpreted RESPA, PHH argued that en banc review is inappropriate because, among other reasons, the D.C. Circuit could not side with the CFPB without “creat[ing] a circuit split with every other court to have considered the proper scope of RESPA.”

At the invitation of the D.C. Circuit, the U.S. Solicitor General also filed its brief later the same day. While the Solicitor General supported the CFPB’s petition for en banc review of the constitutional question, it also suggested that, consistent with Judge Henderson’s dissent from the panel opinion, the full D.C. Circuit could simply vacate the CFPB’s order against PHH on the grounds that the Bureau misinterpreted RESPA. Doing so, the Solicitor General notes, would be consistent with the “well-established principle … that normally the Court will not decide a constitutional question if there is some other ground upon which to dispose of the case.” This ruling would vacate the panel majority’s conclusion that the CFPB’s structure was unconstitutional, although the Solicitor General noted that PHH could renew its constitutional challenge if the CFPB continues to pursue the case on remand.

With respect to the separation of powers question itself, the Solicitor General argued that en banc review is warranted because the majority departed from the analysis used by the Supreme Court to decide such questions. Specifically, the Solicitor General suggests that the panel majority erred by concluding “that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers,” noting that the President’s authority over the multi-member FTC was similarly limited and the FTC enjoyed similar powers at the time the Supreme Court upheld its constitutionality.

Finally, after the filing of the Solicitor General’s brief, PHH requested permission to file an additional brief on the grounds that the Solicitor General had raised arguments not presented in the CFPB’s petition.

For additional background, please see our summaries of the panel decision, the CFPB’s petition for rehearing, and the D.C. Circuit’s order directing PHH to respond and the Solicitor General to provide views.

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Shaw v. United States – Supreme Court Holds That Fraud Against Customer Can Be Fraud Against Bank

In Shaw v. United States, No. 15-5991 (Dec. 12, 2016), the Supreme Court ruled 8-0 that Lawrence Eugene Shaw had defrauded a national bank when he used a customer’s personal details to transfer more than $275,000 from that bank’s customer’s account to his own PayPal account. In an opinion written by Justice Breyer, the Court rejected Shaw’s arguments that the conviction was inappropriate because prosecutors could not prove that Shaw intended to defraud the bank. The Court held, among other things, that: (i) the bank had a property interest in the customer’s deposits; (ii) the defendant’s ignorance of the application of property laws to bank deposits was not a defense; and (iii) the bank fraud statute does not require the government to prove that the defendant intended that the bank would suffer a loss; rather, his knowledge that the bank likely would suffer a loss was sufficient.

Despite this finding, the Supreme Court ultimately vacated the Ninth Circuit’s decision affirming the conviction and remanded it to the appellate court for consideration of whether a claimed defect in the jury instructions was properly preserved for appeal, whether the instructions were defective, and whether any resulting error was harmless.

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Full D.C. Circuit Orders PHH to Respond to CFPB’s Petition for En Banc Review, Invites U.S. Solicitor General to Provide Views

On November 23, the full D.C. Circuit ordered PHH to respond to the CFPB’s petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. The CFPB’s November 18 petition challenged, among other things, the conclusion by the majority of the panel that the CFPB’s structure was unconstitutional and that, to remedy this defect, the Director must be removable at will by the President. PHH’s response, which is due by December 8, would not have been permitted without the court’s order. Similarly, the CFPB is not permitted to file a reply unless ordered by the court.  Importantly, the en banc court also “invited” the U.S. Solicitor General “to file a response to the petition” to “express[] the views of the United States.” Although there is no deadline for this response, the invitation allows the Solicitor General to respond before the change in administration, which may be significant because the Dodd-Frank Act does not allow the CFPB to petition the Supreme Court for review without the approval of the Attorney General (12 USC § 5564(e)).

For additional background, please see our summaries of the panel decision and the CFPB’s petition for rehearing.

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District Court Dismisses Disparate Impact Claim under the Fair Housing Act

In The Inclusive Cmtys. Project, Inc. v. The Tex. Dep’t of Hous. and Cmty., No. 3:08-cv-00546-D (N.D. Tex. Aug. 26, 2016), on remand from the Supreme Court and the Fifth Circuit, the district court dismissed claims of disparate impact under the Fair Housing Act (FHA) where the plaintiff alleged that the defendant allocated two different types of tax credits in a manner that perpetuated racial segregation. The district court applied the Supreme Court’s previously explained three-part burden-shifting framework to analyze the plaintiff’s claim, and determined that, among other things, the plaintiff’s claim failed to show a “specific, facially neutral policy” causing a racially disparate impact. The court reasoned that “[b]y relying simply on [the defendant’s] exercise of discretion in awarding tax credits, [the plaintiff] has not isolated and identified the specific practice that caused the disparity in the location of low-income housing…. [The plaintiff] cannot rely on this generalized policy of discretion to prove disparate impact.” The district court further reasoned that because the plaintiff had not “sufficiently identified a specific, facially-neutral policy that has caused a statistically disparity,” the court could not “fashion a remedy that removes that policy.”  The district court concluded that the plaintiff “failed to prove a prima facie case of discrimination by showing that a challenged practice caused a discriminatory effect” and entered judgment in favor of the defendants.

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SCOTUS Denies Petition for Certiorari in Securitization Case Involving State Usury Law

On June 27, the United State Supreme Court denied a debt buyer’s petition for certiorari in a Second Circuit case that raises the issue of whether New York’s state usury law is preempted by the National Bank Act (NBA) when a national bank-originated debt is purchased by a nonbank. Midland v. Madden, No. 15-610 (U.S. June 27, 2017). As previously covered in InfoBytes, the nonbank debt buyer was assigned debt owed by a New York consumer. The debt carried an interest rate in excess of that permitted by New York law but which was permitted by the law of the bank’s home state, which the bank lawfully “exported.” Facing a usury challenge, the debt buyer argued that it was able to continue charging the valid rate made by the national bank and that it did not have to abide by the consumer debtor’s state usury laws. The Second Circuit rejected the debt buyer’s argument, reasoning that the NBA did not apply to the debt buyer because it was not acting on the national bank’s behalf. The Supreme Court did not grant the debt buyer’s petition for certiorari, leaving the Second Circuit ruling in effect. Notably, at the request of the Supreme Court, the Solicitor General and the OCC filed a brief stating the position of the United States as to whether the Supreme Court should grant the petition for certiorari. Although the brief advised that the Court not grant certiorari, the Government’s brief sharply criticized the Second Circuit’s decision.

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