PHH Corporation v. CFPB

Case Updates

A three-judge panel of the D.C. Circuit issued a lengthy 110-page decision, vacating the $109 million civil penalty. First, the court held that Director Cordray incorrectly interpreted the anti-kickback provisions in Section 8 of RESPA to prohibit all captive reinsurance agreements between an affiliated mortgage insurer and a reinsurer. The court concluded that RESPA permits captive reinsurance arrangements so long as the amount paid by the mortgage insurer does not exceed a reasonable market value of the reinsurance. Second, the court held that Director Cordray retroactively applied a new interpretation of RESPA that had never before been applied, in violation of PHH’s constitutional due process rights. Third, the court held that the three-year statute of limitations in RESPA applies to the CFPB’s administrative proceedings to enforce RESPA, significantly limiting the potential liability of PHH.

Two of the three judges also went further and held that CFPB is unconstitutionally structured because its authority is vested in a single appointee who can be removed by the President only for cause. PHH asked the court to invalidate the entire CFPB on that constitutional ground. But the panel declined to grant such sweeping relief, instead concluding that the for-cause removal provision should be severed from Dodd-Frank.

On February 16, 2017, the D.C. Circuit granted rehearing en banc.

The U.S. Chamber filed an amicus brief in the U.S. Court of Appeals for the D.C. Circuit in support of a petition for review seeking to vacate an order by Director Cordray of the Consumer Financial Protection Bureau (“CFPB”) imposing $109 million in monetary penalties against a mortgage servicer for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”).

The Chamber’s brief argues that Director Cordray’s order retroactively overturns settled legal interpretations of RESPA in the course of an enforcement action, in violation of settled principles of due process. The brief further explains that Director Cordray’s order imposes relief for alleged violations that are well outside the applicable statute of limitations, and Congress did not intend for the Consumer Financial Protection Act to create endless legal uncertainty by subjecting consumer financial services companies to the perpetual threat of an administrative enforcement actions.

Andrew J. Pincus, Stephen C.N. Lilley, and Matthew A. Waring of Mayer Brown LLP served as co-counsel for the U.S. Chamber of Commerce on behalf of the U.S. Chamber Litigation Center.