PHH Corp v. Consumer Financial Protection Bureau: A Recap of Case Arguments

PHH Corp v. Consumer Financial Protection Bureau: A Recap of Case Arguments

Oral arguments in the case of PHH Corp V. the Consumer Financial Protection Bureau were heard in the D.C. Circuit court a little over a week ago. In this case, the constitutionality of the CFPB is being challenged, and so are the way that the Bureau interpreted the Real Estate Procedures Settlement Act. This portion also includes how the CFPB views there to be no statute of limitations that apply to violations of RESPA. It has been noted previously that the director of the CFPB Richard Cordray handed out a $109 million penalty to PHH Corp for allegedly violating RESPA by receiving monetary kickbacks that were related to mortgage reinsurance agreements. The CFPB says PHH made agreements with lenders to receive these kickbacks and Cordray increased the amount of the fine to make it a lot more damaging than the original $6 million fine that an administrative law judge officially ordered at trial.

There are a few portions of the oral arguments delivered so far that may be sure signs of trouble ahead for the Consumer Financial Protection Bureau:

  1. The D.C. circuit appeared to be very concerned about the single director power structure of the Consumer Financial Protection Bureau. It is usually the case that federal agencies are run by either bipartisan or nonpartisan commissions, or sometimes by directors that serve at the appointment of the President of the United States. The CFPB, however, is run by a director who can only be removed “for cause.” Additionally, the CFPB gets funding from a source other than via Congressional appropriations. This helps to protect the bureau from legislative or executive supervision. Judge Brett Kavanaugh pointed out that this set up gives one person a huge amount of power and makes him accountable to very little oversight. Some believe that the findings could lead to the CFPB being deemed unconstitutional, with Kavanaugh questioning what can be done to remedy the situation if the court decides that the power structure of the Bureau is, indeed, unconstitutional. The CFPB, for its part, made the argument that the issue could be remedied by making the “for cause” requirement invalid, and instead making the director to serve at the President’s pleasure. PHH counsel urged for the court to find the CFPB’s structure unconstitutional.
  1. The court was also concerned about the way that the CFPB interprets RESPA. PHH made the argument that it, and the entire mortgage industry, depended on pre-CFPB interpretations of RESPA section 8( c ) made originally by HUD. PHH argued that this interpretation allowed the kinds of arrangements that the CFPB challenged in their case. The PHH counsel argued that the CFPB pulled a fast one when it started enforcing RESPA back in 2011, particularly when the director made his decision in the PHH case in a way that was not fair and that did not allow for due process to take place. Judge Kavanaugh appeared to side with this argument and asked whether or not the CFPB gave fair notice of its RESPA interpretation.
  1. The court seemed to be a bit skeptical of the CFPB’s position of no statute of limitations applying to RESPA violations. According to the Bureau’s argument, the statute of limitations on RESPA do not apply to agency decisions or actions, but only to court proceedings. Judge Randolph observed that in cases as far back as those that took place in the 1800s courts have stated that it is an “abomination to have a federal official not bound by a statute be allowed to bring an action decades after the event.”

An official decision on this case is expected by summer. It is almost a sure thing, however, that whichever side loses will contest the decision and possibly take things all the way to the Supreme Court.