PHH v. Consumer Financial Protection Bureau: What It Means For Current And Future CFPB Enforcement

On October 11, 2016, the United States Court of Appeals for the District of Columbia issued its long-awaited decision in PHH Corporation, et al. v. Consumer Financial Protection Bureau ("PHH Corp."). 1 In a lengthy opinion, the court vacated the Consumer Financial Protection Bureau's ("CFPB" or "Bureau") first contested administrative action and held that mortgage company PHH Corporation ("PHH") did not violate Section 8(a) of the Real Estate Settlement Procedures Act ("RESPA") by engaging in captive reinsurance arrangements, in part because the Bureau in its ruling retroactively applied a new interpretation of law.

The court did not stop with addressing the Bureau's reading of RESPA, however. The court also ruled on PHH's arguments concerning the constitutionality of the CFPB's structure and the applicability of limitations periods to CFPB administrative enforcement actions. Again, the court ruled against the Bureau, finding the structure of the Bureau unconstitutional and holding that the agency must adhere to the limitations periods that apply to the statutes it is charged with enforcing.

While the court's remedy for the Bureau's structural problems—making the Director removable without cause—is unlikely to impact the CFPB's enforcement operations in the short-term, the court's retroactivity and statute of limitations rulings are more immediately significant. Both substantially curtail aggressive statutory interpretations made by the Bureau, and the statute of limitations analysis in particular means that the CFPB is now bound by the same limitations periods whether it chooses to bring enforcement actions through administrative proceedings or in federal court.

The CFPB may seek en banc review of the decision, and if review is denied or the result after review is unchanged, then the Bureau will likely appeal to the Supreme Court. Consequently, the long-term impact of the D.C. Circuit's decision is unknowable. This analysis focuses instead on the practical effect of the court's opinion on businesses and individuals that already are or will be before the Bureau's Office of Enforcement in the near-term.

Case Background

The case arose after the CFPB's Office of Enforcement brought an administrative action against mortgage lender PHH, alleging that PHH violated RESPA by referring business to mortgage insurers with whom PHH had captive reinsurance agreements. The CFPB called the payments between mortgage insurers and PHH's reinsurance subsidiary unlawful "kickbacks" that violated RESPA. At the time the administrative action was brought against PHH, all but two of the CFPB's administrative actions had been filed as consent orders. The PHH action became the first adjudication of an administrative action and the first test of the CFPB's administrative hearing and appeals procedures.

The administrative law judge ("ALJ") hearing the action gave the Bureau a narrow victory, recommending to CFPB Director Richard Cordray that PHH disgorge $6.5 million. Both PHH and the CFPB appealed aspects of the ALJ's recommendation to Director Cordray. Rather than affirming the ALJ's decision, Director Cordray disagreed with certain findings of the ALJ and increased the disgorgement amount to $109 million. The disgorgement calculation rested on two legal conclusions reached by Director Cordray: first, that PHH had violated RESPA each time a payments at issue in the case was made; and second, that the Bureau is not bound by any statute of limitations period when it brings an enforcement action administratively rather than in federal court.

Immediately following Director Cordray's decision, PHH asked the D.C. District Court to stay the ruling, which it did. The Court of Appeals heard arguments in this case on April 12, 2016, and then issued its ruling on October 11, 2016.

Practical Implications of PHH Corp.

Applicable Statute of Limitations Periods Apply to All CFPB Enforcement Actions. For regulated entities, among the most significant aspect of the court's decision relates to the statute of limitations period applicable to Bureau enforcement actions. The Bureau has argued repeatedly that it has no limitations period for enforcement actions brought in an administrative forum.2 The court in PHH Corp. ruled to the contrary, however, holding that the limitations period for the underlying statute applies regardless of forum. While only RESPA was directly implicated in the court's decision, the court discussed the issue more expansively, focusing on the CFPB's enforcement of the 19 enumerated consumer laws under its jurisdiction.

Curiously, the court did not also cite the Bureau's enforcement of Dodd-Frank's Unfair, Deceptive, or Abusive Acts and Practices ("UDAAP") provisions. However, the logic of the holding and the court's dismissive attitude toward the Bureau's position strongly suggest that the holding would...