The United States Court of Appeals for the D.C. Circuit today issued a highly anticipated decision in PHH Corp. v. CFPB (Case No. 15-1177). In a 110-page decision, the D.C. Circuit held that the CFPB’s structure as a single-director independent agency is unconstitutional. The decision on the constitutional issue, however, may have “important but limited real-world implications.” The Court described its ruling, severing the “for-cause” removal provision from the Dodd-Frank Act, as a “targeted remedy” that “will not affect the ongoing operations of the CFPB.”
The Court’s decision comes as part of a closely watched case in which PHH, a nonbank mortgage lender, appealed CFPB Director Richard Cordray’s $109 million order against the firm for allegedly improper payments involving mortgage reinsurance arrangements. Importantly, the Court’s decision made clear that it was not disbanding the CFPB, but instead severing the “for-cause” provision of the CFPA. In other words, the President can now remove the CFPB Director “at will” and can “supervise and direct” the Director, and need not rely on a case of “inefficiency, neglect of duty, or malfeasance in office” to remove the Director.
In addition, the Court also made three additional rulings on PHH’s substantive statutory arguments:
(1) consistent with long-standing guidance from the Department of Housing and Urban Development (HUD), Section 8 of the Real Estate Settlement Procedures Act (RESPA) allows captive mortgage reinsurance arrangements, as long as the amount paid for the reinsurance does not exceed reasonable market value. The court reinforced;
(2) the CFPB violated PHH’s due process rights by retroactively applying a new RESPA Section 8 interpretation that contravened this prior guidance against PHH without fair notice; and
(3) the CFPA incorporates the statutes of limitations of the underlying statutes enforced by the CFPB, including for actions brought in the CFPB’s administrative proceedings.
While the immediate impact of these holdings may reduce PHH’s liability, this case is also likely have a substantial long-term impact on the scope of relief the Bureau can seek in other cases the CFPB brings against financial services providers both in its administrative forum and in district court litigation.