In its brief, PHH highlighted the "unchecked authority" that the CFPB possesses and at least two judges on the three-member panel appeared to agree. Judge Brett Kavanagh noted that "historically, independent agencies have been multi-member on the theory that they are non-partisan or bipartisan. The CFPB structure is a novel structure with very few precedents … you are concentrating in a huge amount of power in a single person that the president has no authority over."

Ahead of the hearing, the judges had submitted these questions to the CFPB, signaling this was not going to be an ordinary day in court:

1. What independent agencies now or historically have been headed by a single person? For this purpose, consider an independent agency as an agency whose head is not removable at will but is removable only for cause.

2. If an independent agency headed by a single person violates Article II (of the Constitution), what would the appropriate remedy be? Would the appropriate remedy be to sever the tenure and for-cause provisions of this statute? Or is there a more appropriate remedy? And how would the remedy affect the legality of the director's action in this case?"

CFPB counsel Lawrence DeMille-Wagman responded, "Congress has made agencies headed by a wide variety of constructions," and referenced the Social Security Administration and the Federal Housing Finance Administration as other single-director federal agencies whose head cannot be removed except for cause. 

In addition to the question about the CFPB's legitimacy, PHH argued CFPB Director Richard Cordray's actions were unconstitutional because he ignored decades of regulatory guidance by HUD and deprived PHH of due process by effectively rewriting RESPA. 

Consumer groups are taking the challenge to the CFPB seriously. In the week following the court hearing, several such groups defended the legality of single-director structure in Capitol Hill meetings with Democratic congressional staff – one Hill aide who was briefed described the CFPB defenders as "a bit off-balance and nervous" about the case. 

Other CFPB advocates dismissed overall criticism of the bureau. U.S. Public Interest Research Group commented that many in the financial industry "don't like the idea of an agency that is not controlled and influenced directly by them. The fact is that the bureau is a breath of fresh air in Washington." The pro-CFPB side will not go quietly into the dark night on this. 

The court is expected to issue a decision by the end of the summer, although a longer wait is possible. The losing side could take its case to the full U.S. Appeals Court (comprised of 18 judges and headed by Supreme Court nominee Merrick Garland), or go directly to the U.S. Supreme Court.   

Either way, this case merits a close eye from credit unions. Two prior court challenges to the legality of the CFPB's structure were turned aside, but this one looks to be different, at least in the early going.

John J. McKechnie, III is senior partner for Total Spectrum. He can be reached at 202-544-9601 or [email protected].