Yesterday, the D.C. Circuit issued its long-awaited decision in PHH Corporation v. CFPB. The court made several landmark rulings. First, it held that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional. The court remedied this constitutional defect by severing the removal-only-for-cause provision from the Dodd-Frank Act. Under the ruling, Director Cordray now serves at the will of the President and is now subject to supervision and management of the President. In a footnote, the court acknowledged that this may create some fallout in other cases, but left that fallout for other courts to address.
In the opinion, the Court also made (at least) three-other significant rulings: First, it rejected the CFPB’s argument that statutes of limitations do not apply to its administrative enforcement actions. The court’s holding was straightforward. If Congress had intended to alter the standard statute of limitations scheme, it would have said so. “[W]e would expect Congress to actually say that there is no statute of limitations for CFPB administrative actions. . . . But the text of Dodd-Frank says no such thing.”
Second, the court held that plain language of RESPA permits captive mortgage re-insurance arrangements like the one at issue in the PHH case, if the mortgage re-insurers are paid no more than the reasonable value of the services they provide. This is consistent with HUD’s prior interpretation. In 2015, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited entirely. The court rejected this on the ground that the statute unambiguously allows the kinds of payments that the CFPB’s 2015 interpretation prohibited. We have blogged before about the CFPB’s erroneous interpretation of the RESPA provisions at issue in this case.
Finally, the court further admonished the CFPB by alternatively holding that even assuming that the CFPB’s interpretation was permitted under any reading of RESPA, the CFPB’s attempt to retroactively apply its 2015 interpretation, which departed from HUD’s prior interpretation, violated due process. It held that “the CFPB violated due process by retroactively applying that new interpretation to PHH’s conduct that occurred before the date of the CFPB’s new interpretation.”
Notably, the court explicitly declined to address the CFPB’s claim that each mortgage insurance payment made in violation of RESPA triggers a new three-year statute of limitations for that payment. It was the CFPB’s view on this point that allowed it to dramatically increase the penalties it sought from PHH. The court’s decision not to address this point in its opinion makes it likely that this will not be the last circuit court opinion required to resolve the case.
Because the opinion did not dismantle the CFPB entirely, the Court remanded the case to the CFPB for consideration of whether PHH violated RESPA as interpreted by HUD. The opinion is 110 pages long. We will be blogging more about it in the coming days and providing the usual detailed analysis of the court’s ruling.