High Court’s Encino Decision Means No Deference for CFPB View on RESPA, PHH Argues

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On June 23, PHH filed a letter in the D.C. Circuit supplementing its appeal briefing in PHH Corp v. CFPB, No. 15-1177. For those of you who may have missed our prior posts on this, PHH is appealing a decision made by CFPB Director Richard Cordray while sitting as the CFPB’s administrative appellate judge. In that capacity, Cordray held that PHH violated RESPA in connection with a captive mortgage reinsurance arrangement. In the appeal before the D.C. Circuit, the CFPB argues that Director Cordray’s interpretation of RESPA section 8(c)(2), which is central to the Director’s decision, is entitled to Chevron deference.

In its original appeal briefing, PHH vigorously opposed the application of Chevron deference to Director Cordray’s interpretation of RESPA section 8(c)(2). The Director determined the RESPA section 8(c)(2) is not an exemption from the broad referral fee prohibition of RESPA section 8(a).  PHH argued that deference only applies if the “normal tools of statutory construction” fail to produce a clear outcome. It further argued that, because RESPA is also a criminal statute, any ambiguities must be resolved in PHH’s favor under the Rule of Lenity.

In its June 23 supplement, PHH argued that the Supreme Court’s June 20 decision in Encino Motorcars,LLC v. Navarro, No. 15-415 is yet another reason not to apply Chevron deference to Director Cordray’s decision. In Encino, the Court addressed a Department of Labor (DOL) final rule under which automobile dealer service advisors are not covered by an exemption from the requirement to pay overtime pursuant to the Fair Labor Standards Act.  The Court held that the DOL interpretation in the final rule, which is opposite of the DOL position on the issue for more than 20 years preceding the rule, is not entitled to deference because of the reliance of the automobile industry on the prior position and because the DOL “gave almost no reasons” for the change.

Like the DOL position in the final rule that was at issue in Encino, Director Cordray’s decision went counter to previously-published guidance interpreting RESPA section 8(c)(2) as an exemption to the RESPA section 8(a) referral fee prohibition. Before the CFPB came into existence, HUD enforced RESPA. HUD interpreted RESPA section 8(c)(2) as an exemption to RESPA section 8(a), and had provided informal guidance on how lenders could establish mortgage reinsurance arrangements in compliance with RESPA. When PHH’s case was before the CFPB, PHH argued that it relied on these HUD interpretations. Director Cordray, however, summarily dismissed the reliance arguments as unpersuasive. PHH argues that, under Encino, Cordray’s unreasoned dismissal is fatal to the application of Chevron deference to his decision.

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