CFPB Hit by Major Setback in D.C. Circuit

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In a decision eagerly awaited by the financial services industry, the D.C. Circuit this week handed the Consumer Financial Protection Bureau (CFPB) a major defeat, throwing out a mortgage lender’s $109 million disgorgement remedy on constitutional, statutory, and administrative-law grounds. See PHH Corp. v. CFPB. This may not be the last chapter in the story, however, as it is likely that the government will seek further review.

BACKGROUND. PHH, the mortgage lender involved in the case, established a subsidiary to provide reinsurance to mortgage insurers that insured mortgages generated by PHH. PHH often referred borrowers to mortgage insurers that used the subsidiary’s reinsurance services. So long as the reinsurance was priced at market value, such arrangements had long been considered permissible under the Real Estate Settlement Procedures Act (RESPA), which prohibits kickbacks in connection with real estate settlement transactions. In particular, such market-price arrangements had been viewed by industry – and, critically, by the government in official guidance – as falling within a safe harbor created by RESPA Section 8(c) for “the payment to any person of a bona fide . . . payment for goods or facilities actually furnished or for services actually performed.”

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