With just a week to spare before its 45-day deadline for appeal expired, the Consumer Financial Protection Bureau (CFPB) has petitioned the US Court of Appeals for the DC Circuit for en banc review of the October three-judge panel decision in PHH Corp v CFPB. Judge Brett Kavanaugh penned the decision, which found the CFPB's single-director structure to be unconstitutional and rejected the CFPB's interpretation of Section 8 of the Real Estate Settlement Procedures Act.

The CFPB's petition is unsurprising. If the DC Circuit agrees to rehear the constitutional or Real Estate Settlement Procedures Act arguments, the three-judge panel decision will be vacated, pending the full court's ruling, and the CFPB will resume business as usual, at least for now.


In 2015 the CFPB issued a final ruling that PHH had violated the Real Estate Settlement Procedures Act by conducting business exclusively with mortgage insurance companies that agreed to purchase reinsurance from a wholly owned PHH subsidiary.(1) The CFPB concluded that the reinsurance premiums constituted illegal kickbacks for PHH's referrals of the initial mortgage insurance business in violation of Section 8(a), which prohibits giving or receiving any "thing of value" in return for settlement service business. The CFPB required PHH to disgorge all of the reinsurance premiums that its subsidiary had received from mortgage insurers since 2008, totalling $109 million – compared to the $6 million-disgorgement order from the administrative law judge.

A three-judge panel of the DC Circuit overturned the CFPB's order on October 11 2016. The panel:

  • held by a two-to-one vote that the CFPB's single-director structure was unconstitutional, given the president's ability to remove the director only "for cause";
  • unanimously rejected the CFPB's interpretation of Section 8 of the Real Estate Settlement Procedures Act, and found that its retroactive application of a new interpretation violated constitutional due process; and
  • unanimously rejected the CFPB's claim that its enforcement proceedings outside of the federal court were not subject to the act's three-year statute of limitations.

The court stayed the issuance of its opinion pending the CFPB's decision whether to seek review by the full Court of Appeals of the DC Circuit. On November 18 2016 the CFPB sought en banc review of the court's constitutional and Real Estate Settlement Procedures Act holdings, but did not dispute the statute of limitations ruling.


Unconstitutional structure of CFPB
The CFPB's appeal challenges the court's decision that the CFPB is unconstitutionally structured on the premise that it conflicts with two Supreme Court cases. First it argues that the decision conflicts with Humphrey's Executor v United States (1935), which allows Congress to create independent agencies headed by presidentially appointed officers removable by the president only for good cause. Second it argues that the decision conflicts with Morrison v Olson (1988), which holds that the president does not have infinite power over independent agencies and that a "for cause" provision does not impede the president's ability to perform his or her constitutional duties, since it allows him or her to remove the agency head if he or she fails to meet statutory obligations.

The CFPB further argues that the court erred in finding a single agency head less accountable to the president than a commission, as commission members have no power to remove each other from office. The CFPB states that a single director may actually be more accountable, since there is no question of who should receive blame for any wrongdoing at the agency. The CFPB characterises PHH Corp as "what may be the most important separation-of-powers case in a generation" and criticises the court's decision as:

  • contrary to Supreme Court precedent;
  • not based on separation-of-powers principles;
  • unduly restrictive of Congress's ability to respond to crises through means such as creating single-director independent agencies; and
  • potentially damaging to other similarly structured independent agencies, such as the Social Security Administration, the Federal Housing Finance Agency and the Office of Special Counsel.

Interpretation of Real Estate Settlement Procedures Act
In addition to challenging the court's constitutional holding, the CFPB's appeal challenges the court's Real Estate Settlement Procedures Act ruling, on the grounds that the judges misinterpreted the act in a way that defeats the statute's purpose. The three-judge panel rejected the CFPB's position that Section 8(c)(2) of the act provides no substantive exception to the anti-kickback provision in Section 8(a) and that fair market value payments for real services performed are insufficient when referrals are present. The panel found that applicable statutory and regulatory language, legislative history and prior interpretations of the act by the Department of Housing and Urban Development (HUD) all clarified that the act prohibits payments for referrals, but allows bona fide payments (ie, payments at reasonable market value) for actual services performed. The CFPB claims that the court interpreted Section 8(c)(2) to allow what Section 8(a) prohibits, as long as kickbacks are disguised as compensation for goods or services. The CFPB charges the judges with two statutory mistakes. First it argues that while Section 8(a) proscribes the exchange of any "thing of value" in return for referrals, the panel ignored the term "thing of value" by holding that Section 8(a) proscribes only payments, and thereby ignored the fact that PHH received a thing of value in the form of reinsurance premiums in return for referrals of mortgage business. Second the CFPB argues that the panel's definition of 'bona fide' as reasonable market value conflicts with the translation of the term as 'in good faith' – with case law noting that the purpose of requiring something to be bona fide is to disallow evasion. The CFPB asserts that the three-judge panel decision would allow lenders to condition referrals on the purchase of goods or services in any related or unrelated business line, which would:

  • flout the core purpose of the Real Estate Settlements Procedures Act to protect consumers from unnecessarily high settlement charges caused by abusive practices;
  • encourage evasion; and
  • hamper the ability of private citizens and public officials to enforce the Real Estate Settlement Procedures Act.

Lastly the three-judge panel ruled that – even if the CFPB's interpretation of the act were correct – it conflicts with prior HUD pronouncements and its retroactive application violates constitutional due process. While the CFPB acknowledges that, alone, the court's due process holding may be insufficient to justify en banc review of the three-judge panel decision, it notes the prior DC Circuit decision(2) that an agency can reverse an interpretation and apply it to the case at hand, unless there is a severe impact on the respondent and justifiable reliance on contrary agency pronouncements. The CFPB asserts that PHH Corp did not justifiably rely on prior HUD opinions, and requests an opportunity to address this holding if the court rehears the Real Estate Settlement Procedures Act arguments.

While the CFPB awaits the court's consideration of the petition, it will continue operating as an independent agency with a single director removable by the president only for cause, and presumably will rely on the Real Estate Settlement Procedures Act interpretations that it espoused in PHH Corp. It is likely that the CFPB's petition will extend this case by another nine to 12 months, which will give the new Trump administration, advocacy groups and the settlement services industry plenty of time to weigh in.

For further information on this topic please contact Phillip Schulman or Emily J Booth-Dornfeld at Mayer Brown LLP by telephone (+1 202 263 3000) or email ([email protected] or [email protected]). The Mayer Brown LLP website can be accessed at


(1) For further details please see

(2) Clark-Cowlitz Joint Operating Agency v FERC (1987).

An earlier version of this update appeared in Mayer Brown LLP's Consumer Finance blog, Consumer Financial Services Review.