Ruling Stands in PHH v. CFPB Mortgage Case

Both PHH and the Consumer Financial Protection Bureau (CFPB) let the filing deadline pass in which to petition the U.S. Supreme Court to review the final ruling of the U.S. Court of Appeals for the District of Columbia (DC) on the case. As a result, the ruling that the structure of the CFPB is constitutional will stand, at least for now. The decision by the two sides to let the ruling stand comes as no surprise as both current parties were primarily pleased in the outcome.

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. Under OMB Director Mulvaney, the CFPB has taken the position to enforce consumer protection laws but to not “push the envelope”.

The question of the constitutionality of the CFPB structure was raised in a lawsuit brought by PHH Mortgage against the CFPB. 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.  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.

On 11 October 2016, the U.S. 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.  On 1 January 2018, 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 could have appealed 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 with that individual having to be removed “for cause” from the position.

With the PHH v. CFPB case now over, the ruling on constitutionally is resolved for now but other pending and future cases could ultimately push the decision to the Supreme Court.

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