WASHINGTON–While an Appeals Court’s ruling that the structure of the CFPB is “unconstitutional” is getting much of the attention, the decision in PHH v. CFPB also has implications for how the Real Estate Settlement Procedures Act (RESPA) is interpreted moving forward.
In the case, New Jersey-based mortgage firm PHH challenged CFPB Director Richard Cordray’s $103-million increase to a $6-million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.
Joseph Lynyak III, a partner at the law firm Dorsey & Whitney and one of the nation’s foremost experts on the CFPB and its dealings, said of the decision, "The DC Circuit Court of Appeals handed a clear victory to the mortgage industry today by discrediting almost completely the regulatory approach taken by the CFPB. Among other things, the DC Circuit held that the CFPB was unconstitutionally structured, it had completely misinterpreted clear mortgage statues, it had acted in violation of due process in regard to PHH mortgage, and had erroneously determined that no statutes of limitations applied to it.”
Lynyak noted in a statement that while the DC Circuit prospectively cured the CFPB’s constitutional infirmity by severing a provision of the CFPB’s enabling statute to make the position of the Director of the CFPB subject to the hiring and firing authority of the President, “it left open the issue whether all the past actions of the CFPB—including billions of dollars of penalties collected—are void or voidable," Lynyak said.
"Finally, in a significant victory for the mortgage industry, the DC Circuit interpreted provisions of the Real Estate Settlement Procedures Act in a manner that reinstates the legality of contractual agreements between participant in the mortgage industry," Lynyak added.
In terms of the RESPA-related portion of the ruling, CUNA said it appreciated that the court recognizes that the CFPB needs to abide by statute of limitations set by Congress, and cannot decide which rules don't apply to them.
The trade group told CUToday.info that the ruling sets a boundary on the CFPB such that if they want to change interpretations of statutes and regulations through the enforcement authority, they will need to do so through proper notice and comment.
“This is only fair so that a regulated industry can have certainty as to what is expected from the regulator and an opportunity to comply after the regulator changes its mind,” CUNA said.