The District of Columbia Court of Appeals has ruled that the “concentration of enormous power” in the hands of a “single, unaccountable, unchecked director” is unconstitutional and has, among other things, struck from the Dodd-Frank Act a clause that provided that the Director of the Consumer Financial Protection Bureau could only be fired for cause. In PHH Corporation v. Consumer Financial Protection Bureau, No. 15-1177, October 11, 2016, the Court, in a very strongly worded opinion, has now made the CFPB’s Director subject to the President’s supervision, direction and removal at will. The opinion makes it clear, however, that the remedy will not affect the CFPB’s ongoing operations.

CFPB had fined PHH $109 million alleging that a referral to a mortgage insurer followed with that insurer buying reinsurance from an affiliated business of PHH was a violation of the Real Estate Settlement Procedures Act. However, the Court cited the HUD safe harbor interpretation that was in place at the time that allowed bona fide transactions between a lender and a mortgage insurer (or between a mortgage insurer and lender-affiliated reinsurer) provided the payment not exceed the reasonable market value of the service. In ruling in favor of PHH, the Court stated that the basic statutory question under Section 8(c) of RESPA “is not a close call”. Further, it stated that even if CFPB’s interpretation of Section 8 were permissible, it represented a complete about-face from long standing policy and retroactive enforcement using an interpretation not in force at the time violated “bedrock principles of due process.”

Also having an impact on the industry is the Court’s ruling that a 3-year statute of limitations applies to CFPB actions instead of CFPB’s position that there was no statute of limitations for an administrative action brought by CFPB. The opinion stated the “absurdity of CFPB’s position” was illustrated by a hypothetical that an administrative action even after 100 years would only be checked by prosecutorial discretion.

The case was remanded to the lower court for review of the $109 million fine assessed against PHH by the CFPB to determine whether the activities of purchasing reinsurance met the reasonable market value test, providing the activities occurred within the 3-year statute of limitations. The CFPB can appeal the case to the full circuit, instead of the three judge panel, and has indicated that they will do so.