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PHH Corporation v. CFPB

Posted By USFN, Monday, November 7, 2016
Updated: Wednesday, October 26, 2016

November 7, 2016

by Joshua Schaer
RCO Legal, P.S.
USFN Member (Oregon, Washington)

On October 11, 2016, the D.C. Circuit Court of Appeals issued an opinion in PHH Corporation v. Consumer Financial Protection Bureau that is a significant victory for lenders.

Background — HUD had long interpreted Section 8(c) of the Real Estate Settlement Procedures Act (RESPA) to read that only an insurer who pays above market value for reinsurance can be presumed to have engaged in a disguised payment for the referral, which is disallowed under Section 8(a). But, in 2014, the Consumer Financial Protection Bureau (CFPB) suddenly declared that all captive reinsurance arrangements are barred under RESPA and ordered PHH to pay $109 million, plus stop reinsurance referrals to their subsidiary.

The Decision — On appeal, the D.C. Circuit found that:
• The CFPB’s single-director structure is unconstitutional because its director enjoys unchecked unilateral power unlike any other federal agency. Rather than preventing the CFPB’s continued operation, however, the court severed the provision of Dodd-Frank which allowed for a single director and held that the agency can continue to function in the executive branch, unless Congress enacts legislation changing its structure.
• On the merits of the CFPB’s action, Section 8 of RESPA allows captive reinsurance arrangements if the amount paid by the insurer is not above market value of the reinsurance.
• The CFPB acted improperly to retroactively apply its own interpretation of Section 8 to punish PHH.
• Any enforcement action concerning whether insurers paid more than market value for reinsurance must be subject to a three-year statute of limitations.

The 101-page majority opinion (along with concurring and partial dissenting opinions) can be found at: https://www.cadc.uscourts.gov/internet/opinions.nsf/AAC6BFFC4C42614C852580490053C38B/$file/15-1177-1640101.pdf.

Editor’s Note: As this USFN Report was going to press, the decision in PHH Corporation v. CFPB (D.C. Cir. Oct. 11, 2016) discussed above was released. Look for more on this case in future USFN publications.

Copyright © 2016 USFN. All rights reserved.
Autumn USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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