In a long-awaited decision following en banc review, the Circuit Court of Appeals for the District of Columbia has ruled that the Consumer Financial Protection Bureau (CFPB) is constitutional, but that it improperly imposed a $109 million penalty on defendant PHH Corporation. In PHH v. Consumer Financial Protection Bureau, the court explained that the “single director” structure of the CFPB, including the protection that the Director may only be removed “for cause,” was constitutional. The court further held that the CFPB had incorrectly interpreted Section 8 of the Real Estate Settlement Procedures Act (RESPA) by retroactively imposing new interpretations of RESPA on PHH, in violation of its due process rights. The court also affirmed that the CFPB could not circumvent the three year statute of limitations under RESPA. A more comprehensive discussion of the issues involved in the PHH v. CFPB case, including its procedural history, can be found here.
Many in the mortgage servicing and consumer financial services industry had hoped that the court would affirm the Circuit Court Panel’s finding that the structure of the CFPB was unconstitutional. There is a silver lining for those disappointed parties, however, in that the court was critical of the CFPB’s imposition of a $109 million fine to PHH. In that capacity, the decision concluded that the Bureau and former director Richard Cordray violated “bedrock principles of due process” by departing from prior HUD interpretations of RESPA, unilaterally declaring that no statute of limitations existed and retroactively extending penalties beyond the established three-year statutory period. Thus, although the constitutionality of the CFPB has been upheld, albeit in a split 7-3 holding, the court’s unanimous conclusion that the excessive penalty was improper is an acceptable concession.
Finally, the issue of whether the CFPB is constitutional will likely need to arise through another matter given the holding. Ordinarily, where a circuit court issues a split decision following en banc review there is a strong argument for Supreme Court review. Here, however, it seems unlikely that PHH will challenge the constitutionality finding since it prevailed on the primary purpose of the appeal - to avoid the $109 million penalty.
A copy of the court’opinion can be found here.
