D.C. Circuit Court of Appeals Rules in PHH v. CFPB

Nation’s second-highest court upholds reversal of the CFPB’s enforcement ruling, but finds CFPB structure constitutional.

1/31/2018 8:00 PM

Industry Advancement ProgramNewsCFPB
D.C. Circuit Court of Appeals Rules in PHH v. CFPB

The day after President Donald Trump gave his State of the Union address celebrating his federal regulatory rollbacks as one of the biggest triumphs of his first year in office, the United States Court of Appeals for the District of Columbia Circuit handed down its highly-anticipated decision in PHH Corporation v. Consumer Financial Protection Bureau (No. 15-1177), the landmark case challenging the constitutionality of the Consumer Financial Protection Bureau’s authority.

The 250-page en banc opinion issued by the full bench of the D.C. Circuit Court says the agency’s single-director structure is indeed constitutional and that its director can only be fired by the president for “inefficiency, neglect of duty, or malfeasance in office.” The 7-3 ruling overturns, in part, a 2-1 ruling in 2016 by a three-judge panel of the same court, and notably has an impact on the administration’s policy goals to continue to roll back financial regulations and defang the bureau. 

Writing for the court, D.C. Circuit Judge Nina Pillard said that there is “no constitutional defect” in the unusual independence that lawmakers granted to the bureau’s director. Judge Pillard added:  “Congress’s decision to provide the CFPB director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will.” 

The appellate court’s Jan. 31 decision was, however, not a total loss for PHH Corp. and other companies facing CFPB investigations. Although the D.C. Circuit Court upheld the CFPB’s structure, it more importantly tossed out a $109 million penalty that the CFPB had issued to PHH Corp. and returned the case to the CFPB for further proceedings based on the appellate court’s legal guidance. In doing so, the full circuit court left intact the panel’s holding that retroactive applying of a new Real Estate Settlement Procedures Act interpretation violated PHH’s due process rights and the bureau is bound by statutes of limitation regardless of whether the CFPB is enforcing consumer financial laws through a civil action or administrative proceeding. Moving forward, if this holding survives a possible appeal in the U.S. Supreme Court by the White House or from PHH Corp., this decision will likely have major implications for government enforcement agencies and anyone that is targeted in an enforcement action. 

In response to the D.C. Circuit Court’s decision giving PHH Corp. a new chance to challenge the $109 million penalty the agency previously imposed for alleged misconduct, the company said in a statement, “The decision by the full D.C. Circuit Court of Appeals to uphold the panel’s ruling to overturn former Director Cordray’s decision under RESPA with respect to our former mortgage reinsurance activities, which includes vacating the $109 million penalty, is an important and gratifying outcome for PHH and the industry. We continue to believe that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects. Regarding the remand, we will continue to present, if necessary, the facts and evidence to support our position that mortgage insurers did not pay more than reasonable market value to PHH affiliated reinsurers.” 

The PHH Corp. case stems from the CFPB’s fight against PHH Corp, which started with a $103 million increase to a $6 million fine initially levied against PHH Corp. for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks. The fight ended, or so it appeared, with the CFPB’s leadership structure being declared unconstitutional by the D.C. Circuit Court in a 2-1 vote. But the CFPB appealed the ruling, asking the entire court to decide the case from scratch rather than the three-judge panel that ruled on the case in October 2016. When the full court of appeals granted the CFPB’s request in February 2017, the ruling permitted the CFPB to defend the constitutionality of its leadership structure before the full court. 

As ACA reported previously, ACA International filed an amicus (friend of the court) brief on March 10, 2017, in the PHH Corp. case to share with the appellate court its unique and direct perspective on why it believes the bureau’s powers must be reined in within constitutional bounds to ensure accountability and transparency.  In its brief, ACA argued that “[t]he Bureau’s structure and function —wielding power over a broad swath of Americans’ lives, concentrating power in the hands of a single Director, insulated from democratic accountability—is ripe for the arbitrary and unrestrained exercise of power in disregard for due process, and for the constitutional rights of the objects upon whom that power is exercised.” 

ACA will continue to follow the PHH Corp. case and will keep its members posted on any additional new developments. 

If you missed any of the articles previously published in ACA Daily that provided more detailed information about Industry Advancement Program supported cases, like the PHH Corp. case, you can always see the archived articles on the Industry Advancement Program website. Watch for updates when decisions are issued in these cases and learn more about new cases supported by the Industry Advancement Program in the future by reading ACA Daily and logging onto the Industry Advancement Program website throughout the year. 

Related content from ACA International:

Breaking News: Trump Administration Signals Opposition to CFPB in D.C. Circuit

Breaking News: ACA International Files Legal Brief in Pivotal D.C. Circuit Case Challenging CFPB’s Structure and Power Under Dodd-Frank

Full Panel D.C. Circuit Court Holds Oral Argument In Appeal Over Constitutionality of CFPB 

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