UPDATE

Plaintiffs sent the following letter to the 5th Circuit Appellate Court regarding the below decisions.

I write to alert the Court to two recent decisions that are relevant to
Plaintiffs’ claim that the Net Worth Sweep should be vacated because FHFA is unconstitutionally structured.

First, in Lucia v. SEC, __ S. Ct. __, 2018 WL 3057893 (June 21, 2018)
(Exhibit A), the Supreme Court vacated a decision by an SEC administrative lawjudge and remanded the matter for a new hearing before a different, constitutionally appointed official. In adopting that remedy, the Court explained that “our Appointments Clause remedies are designed not only to advance” “the structural purposes of the Appointments Clause,” “but also to create incentives to raise Appointments Clause challenges.” Id. at *8 n.5 (internal citations and
alterations omitted). The same rationale mandates a meaningful remedy when an official serves in violation of the President’s removal power, and the Court should reject novel standing arguments that would permit the political branches to reallocate powers that the Framers assigned to the President and Congress. Reply Br. at 1–2, 6–7.

Second, in CFPB v. RD Legal Funding, LLC, No. 17-890, at 99–100
(S.D.N.Y. June 21, 2018) (Exhibit B), the court ruled that the CFPB is
unconstitutionally structured. The RD Legal Funding court also rejected the CFPB’s argument that it could ratify prior decisions rendered in violation of the separation of powers while it is temporarily headed by an Acting Director who does not enjoy for-cause removal protection. The constitutional problem with the CFPB—and FHFA—concerns “the structure and authority of the [agency] itself,
not the authority of an agent to make decisions on [its] behalf.” Id. at 101–02. Irrespective of whether the President could have fired Acting Director DeMarco without cause, FHFA was operating as an unconstitutionally structured independent agency when it imposed the Net Worth Sweep. Reply Br. at 4–6. Accordingly, consistent with the remedy adopted by the Supreme Court in Lucia, the Net Worth Sweep must be vacated.

Respectfully submitted,
/s/ David H. Thompson

ORIGINAL POST

So, just this week a Manhattan Federal Judge ruled that the CFPB was unconstitutionally structured.

CFPB:

U.S. District Judge Loretta Preska in Manhattan objected to the CFPB’s setup as an independent agency with a single director who can be fired by the president only for cause, not at will.

In January, a federal appeals court in Washington said that structure is legal. Preska said she disagreed.

The immediate effect of the ruling appears to be limited. It means the CFPB can’t be party to a lawsuit about a company accused of scamming 9/11 first responders. The New York attorney general, who was also a plaintiff, can move forward with the case.

But the judge’s decision adds fodder to the political fight over the independence of the CFPB, which was established after the financial crisis to safeguard Americans against predatory financial institutions.

The CFPB declined to comment.

The American Bankers Association, which has advocated for reining in the CFPB, said the implications of the decision “remain unclear,” because other federal courts have ruled differently.

The Center for Responsible Lending, a consumer advocate group, said it was a “clear and completely inappropriate example of legislating from the bench.”

The CFPB is a frequent target of Republicans, who argue it wields too much unchecked power.

Acting Director Mick Mulvaney, who called the CFPB a “joke” when he was serving in the House, has taken steps to weaken the bureau since his appointment in November.

Earlier this month, he essentially disbanded a board of advocates who advised the agency about fair lending and underserved communities.

President Donald Trump named Kathy Kraninger, who currently works at the Office of Management and Budget, this week as Mulvaney’s permanent replacement.

Democrats including Senator Elizabeth Warren of Massachusetts oppose her appointment. Warren tweeted Tuesday that Kraninger “has no track record of helping consumers.”

Mulvaney said Wednesday at a financial technology conference in New York that the CFPB is “still Elizabeth Warren’s baby.”

“Until we break that, we’ll never be considered to be on par with other regulators like the SEC,” he said.

That coincided with the SCOTUS ruling (in  Lucia vs SEC) that said decisions from unconstitutionally structured agencies lead to unconstitutional judgments and must be reheard again by a constitutionally appointed official or tribunal.

Justice Kagen wrote:

The only issue left is remedial. For all the reasons we have given, and all those Freytag gave before, the Commission’s ALJs are “Officers of the United States,” subject to the Appointments Clause. And as noted earlier, Judge Elliot heard and decided Lucia’s case without the kind of appointment the Clause requires. See supra, at 5. This Court has held that “one who makes a timely challenge to the constitutional validity of the appointment of an officer who adjudicates his case” is entitled to relief. Ryder v. United States, 515 U. S. 177, 182–183 (1995). Lucia made just such a timely challenge: He contested the validity of Judge Elliot’s appointment before the Commission, and continued pressing that claim in the Court of Appeals and this Court.

So what relief follows? This Court has also held that the “appropriate” remedy for an adjudication tainted with an appointments violation is a new “hearing before a properly appointed” official. Id., at 183, 188. And we add today one thing more. That official cannot be Judge Elliot, even if he has by now received (or receives sometime in the future) a constitutional appointment. Judge Elliot has already both heard Lucia’s case and issued an initial decision on the merits. He cannot be expected to consider the matter as though he had not adjudicated it before.5 To cure the constitutional error,another ALJ (or the Commission itself) must hold the new hearing to which Lucia is entitled.6 We accordingly reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

Why does this all matter? In the current Bhatti GSE litigation (transcript), Bhatti is, in fact, challenging the legality of the FHFA as it is currently set up as it is akin to the setup of the CFPB.

In Bhatti the Judge was struggling with what the remedy would be should he rule the current set up of the FHFA unconstitutional.

So, these two recent decisions give the Bhatti judge cover in that, he now has precedent that the FHFA as currently structured is unconstitutional and if it is, the SCOTUS ruling just this week says decisions by that unconstitutional arrangement are invalid and must be “reheard or re-decided” for lack of a better term.

That would mean the NWS itself would be set aside to be re-decided or re-enacted. Given the government has been paid back with a massive profit, what are the odds Trump/Mnuchin/Watt sign off on it again?  Watt clearly does not like the current arrangement and it seems clear he’d be happy to rid the nation of it before he leaves office.

FHFA is structured the same way as the CFPB.  Ths is ripe that our government is arguing one is legal and the other is not.

Peter Chapman:

In an amicus filing in PHH v. CFBP, No. 15-1177 (D.C. Cir.), today — a copy of which is attached to this e-mail message — the Department of Justice doesn’t support the way the CFBP is structured.  By implication, the Department of Justice would not support the way FHFA is structured.  Our government’s arguments today in PHH v. CFPB do not square with our government’s arguments on a Reply filed on Feb. 27, 2017 — see http://gselinks.com/Court_Filings/Collins/16-cv-03113-0038.pdf — in Collins v. FHFA which challenges the constitutionality of the FHFA.

Incredibly, Chad R. Readler, Acting Assistant Attorney General, is the same lead lawyer in both cases!

PHH v CFPB decision