Government Affairs

Appeals Court Rules CFPB Structure Constitutional

The U.S. Court of Appeals for the District of Columbia (D.C.) has ruled that the structure of the Consumer Financial Protection Bureau (CFPB) is constitutional.  The Court had previously ruled that the structure was unconstitutional, and the Bureau appealed the decision.  Much of the power of the CFPB lies within its Director who under the Dodd-Frank Act can only be removed “for cause” by the President instead of “at will” which is the case with other federal agency heads.

The question of the constitutionality of the CFPB structure was raised in a lawsuit brought by PHH Mortgage against the CFPB.  PHH.  The CFPB had taken enforcement action against PHH for alleged violations of Section 8 of the Real Estate Settlement Procedures Act (RESPA). Specifically, the Bureau cited the captive mortgage reinsurance practices of the lender as problematic and subsequent reinsurance premiums as improper.  An administrative law judge found in favor of the CFPB and levied a fine of $6.4 million against PHH for reinsurance premiums accepted on those loans, closed after July 2008, within the three-year statute of limitations. Then-CFPB Director Cordray stated the statute of limitations did not apply in administrative proceedings, and levied a total fine of $109 million to include premiums received prior to 2008.  

PHH appealed the decision, citing three principal arguments.  First, the CFPB incorrectly applied Section 8 of RESPA. Second, the CFPB departed from past interpretations by Department of Housing and Urban Development. Lastly, the administrative proceedings of the CFPB are subject to a three-year statute of limitations and the purported misconduct was outside of that window.  PHH also cited the broader issue of the structure of an independent agency led by a single director being in violation of the constitution.  On October 11, the US Court of Appeals for the District of Columbia issued its judgment in the case of PHH Corporation v. Consumer Financial Protection Bureau in which the Court sided to a large extent with PHH on all points.  The CFPB then appealed the decision to the full block of justices of the Court.

In its most recent ruling, the Court ruled the structure of the CFPB to be constitutional, but also provided a victory for PHH in staying the fine pending a further review.  PHH and the Trump Administration can appeal the ruling to the United States Supreme Court.  However, the staying of the fine benefits PHH, and President Trump now has his appointee, OMB Director Mulvaney, leading the Bureau.  President Trump also will be able to appoint the more permanent head of the CFPB, who would then serve a five-year term, also subject to “for cause” rather than “at will” removal from the position.

How this will impact mobility: The relocation of a transferee often involves the sale and/or purchase of a home and thus the policies and practices involving real estate directly impact Worldwide ERC® members.  The CFPB Director has enormous powers, with little oversight from Congress, and thus the policy positions of a specific individual as director determines the direction of the Bureau.

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