CFPB Is Constitutional, But Makes $100 Million Mistake in Interpreting the Law

This article was co-authored by Joann NeedlemanJane C. LuxtonThomas A. Brooks, partners at Clark Hill.

The D.C. Circuit Court of Appeals issued its long awaited decision in Consumer Financial Protection Bureau v. PHH, holding by a 7-3 decision that the Consumer Financial Protection Bureau’s (CFPB or Bureau) single-Director structure, which provides that its Director can be removed only “for cause,” is constitutional.  What has received scant recognition, however, is the court’s confirmation that the Bureau was wrong on several grounds in its imposition of a $109 million penalty against PHH. With this second holding, the ruling is far from a sweeping win for the CFPB, and its implications are profound for curtailing widely criticized Bureau practices of regulating by enforcement and retroactive imposition of new interpretations of the law.   

Buried in the 250-page opinion is a reinstatement of the previously vacated Court of Appeals panel ruling that the CFPB’s interpretation of the Real Estate Settlement Procedures Act (RESPA) and its application to mortgage lender PHH was invalid in two ways:  (1) the Bureau incorrectly interpreted Section 8 of RESPA and retroactively imposed its new interpretation on PHH, depriving the lender  of its constitutional due process rights and (2) the CFPB was bound by the three-year RESPA statute of limitations. While the Bureau may have won the right to live another day with its current structure, its ways of conducting business and discharging its duties have significantly changed going forward.  

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