After three years, debate between PHH and CFPB seems far from over

Written By: Joel Palmer, Op-Ed Writer

It started three years ago with a hefty, nine-figure fine.

The agency that imposed the fine was called unconstitutional by the mortgage giant it sought to punish for an alleged violation.

The courts agreed with the mortgage company last fall and vacated the fine. The losing side appealed. Congress and the Trump Administration jumped into the fray. A followup hearing took place late last month. 

And three years later, it appears the mortgage industry, regulators, lawmakers, and the courts are no closer to a resolution. 

Just before the Memorial Day holiday and before Washington became engrossed in the Congressional testimony of a dismissed FBI director, the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) heard oral arguments in the case filed by PHH Corp. against the Consumer Financial Protection Bureau's (CFPB).

It’s a significant case for the mortgage industry, as a ruling in PHH’s favor would likely lead to restructuring of the CFPB and a significant check on its power.

A winner of this latest battle won’t be determined for several months. Like the fans of an upcoming championship game, PHH supporters and those in the corner of the CFPB believe their side will ultimately prevail. 

Other observers anticipate the two sides will have to debate their issues at least one more time with a different set of referees: the U.S. Supreme Court.

Here’s how the case got to this point:

•    The CFPB was formed as part of Dodd-Frank in 2010 to bring transparency to consumers, especially as it relates to mortgages and credit cards.

•    In 2014, the agencyfined PHH $6 million for referring borrowers to mortgage insurers that purchased reinsurance through PHH subsidiaries, which it said violated the Real Estate Settlement Procedures Act (RESPA). CFPB’s director, Richard Cordray, added another $103 million to that fine. 

•    PHH argued that the CFPB’s governing structure violated the U.S. Constitution because it’s headed by a single director who has a fixed term and can only be removed by the President for cause.

•    A three-judge panel for the U.S. Court of Appeals agreed with PHH in an October 2016 ruling and vacated the fine.

•    CFPB challenged the verdict and received an “en banc” review, a hearing in which all judges on the Appeals Court attend, not just a three-judge panel. This rehearing was held in late May.

So what happened? It depends on who you ask. 

One published account indicated that the 11-member court “appeared sharply divided along partisan lines” and was “tilting slightly toward” the CFPB.

When asked by Scotsman Guide News if he thought the court would reverse its earlier decision, Joseph Lynyak, a partner with the Washington, D.C.-based Dorsey & Whitney law firm, replied:

“I have read several articles over the last couple of days that it was very clear that they were leaning in favor of the CFPB, and frankly I think that is a stretch. You don’t know what is going through their minds.”

One apparent aspect of the hearing was that questions and arguments pertained almost exclusively to the issue of CFPB’s structure and constitutionality, with little time allocated for the original issue regarding PHH’s alleged violation of RESPA.

"The D.C. Circuit was most interested in the implication of whether or not a removable 'for cause' provision makes the CFPB director sufficiently accountable and whether the current bureau current structure limits presidential power," said Alexander Monterrubio, director of regulatory affairs for the National Association of Federally Insured Credit Unions. 

"Some of the judges' comments seemed to suggest that the Court of Appeals may not be the proper forum to resolve these questions of law, which means we could be heading down a path toward a review by the Supreme Court."

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.