In its long-awaited and lengthy opinion in PHH Corporation v. Consumer Financial Protection Bureau, the US Court of Appeals for the District of Columbia Circuit has trimmed the sails of the Consumer Financial Protection Bureau, finding that its single director structure lacked the critical check and structural constitutional protections courts have required of independent federal agencies and thus is unconstitutional.

Beyond the constitutional issues, the court rejected the bureau’s attempt to apply new interpretations of old law retroactively and its suggestion that statutes of limitation did not apply to its administrative actions.


Many across the financial services world have been awaiting the PHH opinion, principally because it was the first of the federal courts of appeal to take up the long simmering argument that the CFPB’s single director structure created what amounted to an unaccountable fourth branch of government, not otherwise subject to the full checks and balances of the Constitution. Other “independent” agencies, like the SEC and FCC, are notable for and have been found constitutional because they have multiple commissioners or directors, acting as a check on the excesses of a single commissioner or director. The CFPB, on the other hand, is headed by a single director, reportable to no one and not subject to check or oversight (other than removal “for cause,” which is narrowly defined in Dodd-Frank), but with the unilateral, executive power to enforce 19 separate federal consumer financial protection laws – deciding what rules to enforce, when to enforce them and against whom, and to impose sanctions and penalties on those the director determines have violated the law.

PHH and similarly situated litigants have advanced the argument that such concentrated power in a single director is unconstitutional and so too then the entirety of the Consumer Financial Protection Act creating the CFPB. While the PHH court found the directorial structure unconstitutional, it declined to enjoin the law in its entirety or otherwise stop the bureau’s work. Rather, it simply severed the CFPA’s “for cause” provision, rendering the bureau subject to presidential oversight and the director subject to removal by the President.


While the PHH court allowed the CFPB to continue its operations, it rejected the CFPB’s attempt to change its interpretation of existing law and apply that change retroactively. Specifically, the court agreed with PHH that Section 8 of the Real Estate Settlement Procedures Act (RESPA) allowed captive reinsurance arrangements, in which mortgage lenders would direct borrowers to certain mortgage insurers, who in turn, would reinsure their risk with the lender’s captive reinsurer, as long as the fee paid by the insurer to the reinsurer did not exceed the reasonable market value of the reinsurance. This understanding of the law had been confirmed in the past by guidance issued by the Department of Housing and Urban Development (HUD), the agency previously responsible for enforcement of RESPA and it was on HUD’s guidance and interpretation that the industry relied. The CFPB, however, upon becoming RESPA’s enforcing agency, determined that such arrangements were per se violations of the law regardless of the value paid, and so sought to sanction PHH, a lender and owner of a captive reinsurer, for its past reliance on HUD’s guidance. The PHH court found that the CFPB’s interpretation of RESPA’s Section 8 did not accord with the actual language of the statute, its stated purpose or the longstanding interpretation given it by prior enforcing agencies and courts.

Critically, the PHH court rejected CFPB’s claim to Chevron deference. While the Supreme Court’s decision in Chevron USA v. Natural Resources Defense Council Inc. provides that courts should defer to the interpretation of federal regulatory agencies when faced with ambiguity in the enacting law, such deference is not required where, as here, the tools of statutory interpretation allow the court to discern the clear intent of Congress. Given RESPA’s clarity on the permissibility of properly structured captive reinsurance arrangements, the PHH court opined, it was for Congress, not the CFPB, to change the law and render such arrangements illegal.

The PHH court took exception to the CFPB’s attempt to apply its new interpretation of Section 8 retroactively. There was no question that the real estate lending industry had long relied upon HUD’s longstanding and contrary interpretation of Section 8. To allow the retroactive interpretation of the law to “proscribe past conduct” would “contravene… the bedrock due process principle that the people should have fair notice of what conduct is prohibited.”

Statutes of limitation

Finally, the court had little patience for the CFPB’s claim that statutes of limitation did not apply to its administrative proceedings.

The PHH matter began with the CFPB bringing an administrative enforcement action against PHH, in which it imposed heavy sanctions on PHH. It was only when PHH had exhausted its administrative appeals that it commenced its own action in the federal courts seeking to overturn the CFPB’s administrative order and sanctions. PHH argued that the conduct at issue had occurred outside RESPA’s three-year statute of limitations; the CFPB countered that under the CFPA – a critical piece of the larger Dodd-Frank law – its administrative proceedings were not subject to any such limitation.

The Court of Appeals disagreed. The CFPA did not absolve the CFPB of adherence to statutory limitations, rather the CFPB was bound by such limitations regardless of whether it pursued defendants in court or administrative proceedings. If Congress had intended Dodd-Frank to amend the existing statutes of limitations for enforcement of critical consumer financial protection laws, the PHH court opined, one should expect the text of the law to say so. No such text or amendment is found here and for the court this was not surprising, because such an alteration would have been “absurd” and “utterly repugnant to the genius of our laws, to allow such prosecutions in perpetuity of existence.”

Why is the PHH decision important?

There is little doubt that the CFPB will seek further appeal of the PHH ruling and that more litigation will follow.

Nevertheless, this decision is important for several reasons. It is the first appellate decision to find the CFPB’s structure, with a single and otherwise unaccountable director immune from basic checks and balances present in all other regulatory agencies, to be unconstitutional. While the placement of the bureau under the aegis of the Executive Branch does not neuter the agency, it should act as at least a partial brake on its ambitious redesign of the financial services industry writ large.

Of almost equal importance, this is the first appellate decision to push back on the CFPB’s ever-broadening interpretation of its charter and powers. Rejecting the bureau’s retroactive re-interpretation of laws and preserving the sanctity of statutes of limitations should provide some (albeit, perhaps small) comfort to those operating daily in the financial services industry.

Whether the decision will embolden other industry participants to challenge the bureau’s assertions of authority or disregard for prior regulatory frameworks, and whether other courts, including at some point the Supreme Court, will follow the lead of the PHH court are yet to be seen.