Why the Outcome of PHH Corporation v. CFPB Matters.

The recent decision by the United States Court of Appeals for the District of Columbia Circuit in PHH Corporation v. Consumer Financial Protection Bureau (CFPB) generated some pretty far-reaching consequences. PHH, a New Jersey-based mortgage company, appealed a $109 million fine levied by the CFPB for referring consumers to mortgage insurers in exchange for kickbacks, in violation of the Real Estate Settlement Procedures Act. The Court ruled in favor of PHH, citing three separate issues:

First, the court agreed with PHH that the CFPB’s structure is unconstitutional. Other government agencies operate under the authority of the President of the United States. The Director of the CFPB, Richard Cordray, was insulated from presidential oversight. Not only that, but the agency continuously made moves to widen its scope, meaning that Cordray was allotted “broad authority over the U.S. economy…and significantly more unilateral power than any other single member of any other independent agency,” the court wrote.

Second, the court found that the CFPB could not change its interpretation of existing Real Estate Settlement Procedures Act (RESPA) law and apply that change retroactively. Insurers will continue to abide by guidance issued by the Department of Housing and Urban Development (HUD), which makes PHH’s arrangement with their reinsurer, so long as fees do not exceed fair market value, completely legal. The court wrote that it was up to Congress to change the law, not a government agency. Further, the court reasoned that CFPB’s move to allow their new interpretation to punish past conduct that was considered legal at the time would “contravene…the bedrock due process principle that the people should have fair notice of what conduct is prohibited.”

Third, the court agreed with PHH, that though the CFPB originally pursued PHH via administrative proceedings rather than in court, the three-year statute of limitations outlined by RESPA applied to administrative proceedings as well legal proceedings. This was despite CFPB’s argument that under the CFPA, a component of Dodd-Frank, administrative proceedings were not subject to any statutes of limitation.

Though the CFPB has not run out of appeals and the PHH ruling will face more litigation, the findings of the DC Court of Appeals are important for several reasons. First, it is the first lower court to find the CFPB’s structure to be unconstitutional. Second, the court’s decision provides some stability for those in the financial services industry by pushing back on the CFPB’s attempt to retroactively re-interpret laws, making past actions punishable, as well as their attempt to do away with statutes of limitations.

Click here to read the court’s decision in its entirety.

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