Monthly Archives:' October 2016

PHH Corporation v. CFPB

If you are like me, you have probably read several very brief articles about the eagerly anticipated appellate decision from the DC Court of Appeals in PHH Corporation v. Consumer Financial Protection Bureau (CFPB), considering whether or not the CFPB is an unconstitutionally created behemoth. As important as the future of the CFPB is, there were really critical issues addressed by this decision. So, I have put on my reading glasses and now read the entire 110 pages of the opinion.

Constitutional Issue. The first 69 pages of the opinion dealt with the constitutionality issue as to the structure of the CFPB. The court concluded that, in order to appropriately maintain the effect of the Executive Branch, an independent agency must either have a multi-member board or the president must have the authority to remove the director at will rather than only “for cause.” The remedy put into place by this court is to conclude that the CFPB director must be dismissible at will by the president.

FYI, there are three agencies that don’t fit the analysis including the Social Security Administration, FHFA, and the Office of Special Counsel. Another single executive agency, the Office of Comptroller of the Currency, is safe as the comptroller is removable at will.  Therefore, that agency’s constitutional validity should not be at question. And the court found appropriate protections or limitations as to the other three.

RESPA. The court then totally struck the CFPB’s interpretation of the anti-kickback provisions in RESPA. The law and the rule have an explicit exception for “payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” HUD had long standing letters and interpretations explicitly permitting the reinsurance scenario. The only issue in this case, then, is whether the reinsurance premiums were at “reasonable market value.” According to the court, “the basic statutory question in this case is not a close call.

This part of the opinion is very important to community bankers as I believe it strikes at the heart of the guidance published last year by the CFPB on marketing services agreements. If the contracts provide for services that are actually performed and the payment is at reasonable market value, then these agreements should be valid.

Statute of Limitations. Cordray held in his administrative opinion that the statute of limitations in RESPA did not apply to him. He concluded that the Dodd Frank Act’s enforcement authority granted to the CFPB authorized administrative actions that were not bound by other statutes and their specific limitations provisions. The court disagreed and concluded that the CFPB’s enforcement authority is in fact limited by the “statutes of limitations of the various federal consumer protection laws it is charged with enforcing.” RESPA has a one year limitation period for court actions and a three year period for administrative ones. Thus, the three years applies here. This is just not ambiguous in RESPA, and the Dodd Frank Act doesn’t override this. This part of the opinion also means that the CFPB can’t ignore the clear statutes of limitation in the other 18 laws assigned by DFA to it.

There is a very good discussion of the core American jurisprudence concept of due process in this part of the opinion. I particularly like this quote from Satellite Broadcasting Co. v. FCC: “Traditional concepts of due process…preclude an agency from penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule…Otherwise the practice of administrative law would come to resemble ‘Russian Roulette.'” I would argue that the current ADA application to private websites-without any rulemaking on the part of the Department of Justice-would also fall within this prohibition!

For more information contact: Karen M. Neeley.