United States: D.C. Circuit's PHH Ruling Reins in CFPB

On October 11, 2016, the U.S. Court of Appeals for the District of Columbia Circuit held in PHH Corporation v. Consumer Financial Protection Bureau, case no. 15-1177, that the CFPB's structure of a single independent director, removable only for cause, violates the separation of powers provisions of Article II of the Constitution. In addition, the Court unanimously (1) held that CFPB Director Richard Cordray's prior order that the CFPB could enforce its new interpretation of the Real Estate Settlement Procedures Act ("RESPA") violated PHH's constitutional due process rights and (2) rejected the CFPB's contention that it is not subject to any statute of limitations when bringing a RESPA enforcement action through the administrative adjudication process.

The Court's holdings are major setbacks for the CFPB, particularly its enforcement activities. The decision may temper the CFPB's expansive view of its authority – recently emboldened following the publicity surrounding the Bureau's and other authorities' enforcement actions against Wells Fargo (with the lion's share of credit given to the CFPB), as well as the CFPB's summary judgment victory in its litigation against CashCall Inc. for servicing loans that were invalid under state laws. The CFPB is likely to appeal the PHH ruling, either through seeking a rehearing en banc or directly filing a petition for a writ of certiorari with the Supreme Court. Given the important constitutional questions presented, it is reasonable to expect that the Supreme Court will grant review.

While the Court's ruling that the CFPB's structure is unconstitutional will grab headlines, it will have little to no immediate impact on the CFPB's current operations. PHH had argued for the Court to void the entire Dodd Frank Act or require the CFPB to cease operations pending passage of legislation creating a new leadership structure. The Court, however, adhered to the established principle that, when possible, constitutional infirmities in legislation are to be addressed by invalidating only the unconstitutional portions of the legislation, leaving the remainder intact. The Court accepted the CFPB's argument that the appropriate remedy is to sever the portion of the statute providing that the Director may only be removed for cause. The Court's holding grants the President the authority to remove the Director at his or her discretion, thereby allowing the CFPB to be overseen in a manner similar to executive offices such as the Department of Justice and the Treasury Department. Notably, the holding leaves in place the CFPB's prior acts, including its regulations and prior enforcement actions and settlements. While the Court's opinion, decrying the concentration of power in the CFPB and its Director, will provide ammunition to calls for legislative changes to the structure of the agency, the likelihood of passage of any such legislation remains low.

The Court's ruling, if affirmed, will have substantial impact on future enforcement actions by the CFPB as further discussed below. Given the influence of the D.C. Circuit, courts and administrative law judges may immediately begin citing the Court's ruling, even while any appeal is pending.

The CFPB commenced its enforcement action against PHH in 2014, alleging that PHH's captive reinsurance program for private mortgage insurance violated RESPA. The CFPB brought the enforcement action even though a prior guidance letter from the Department of Housing and Urban Development (which had jurisdiction over RESPA before the Dodd Frank Act transferred that authority to the CFPB) specifically permitted the challenged practice provided that mortgage insurers paid a reasonable market value to the reinsurers. After an administrative law judge found in favor of the CFPB, PHH appealed the decision to Director Cordray, who affirmed the retroactive enforcement. Director Cordray also ruled that the CFPB could pursue action for violations of RESPA dating back to three years before the inception of the Bureau, far longer than the three year statute of limitations provided for in RESPA, resulting in the assessment of a $109 million civil penalty against PHH. On review, the Court rejected Director Cordray's reasoning that administrative RESPA enforcement actions brought by the CFPB are not subject to a statute of limitations.

The D.C. Circuit further held that the CFPB incorrectly interpreted RESPA and that reinsurance agreements do not constitute kickbacks if they provide fair value. This ruling is a substantial victory for entities subject to RESPA, which had been forced to contemplate major changes in their business arrangements to comply with the CFPB's RESPA interpretation.

Particularly significant is the Court's holding based on principles of due process or fair notice that, even if the CFPB's interpretation of RESPA were correct, it could not be enforced retroactively. The Court emphasized that the CFPB may not "turn around and retroactively apply [a] new interpretation to proscribe conduct that occurred before the new interpretation was issued." Rather, companies are entitled to rely on prior guidance. This ruling is particularly important given the frequency with which the CFPB interprets federal financial consumer protection laws to impose obligations different from the industry's prior understanding. For example, this holding provides a means to challenge CFPB enforcement actions that raise novel legal theories, particularly where prior regulatory authority or case law allowed the later challenged practice. It similarly provides additional arguments against CFPB theories of unfair, deceptive or abusive acts or practices ("UDAAPs") seeking to impose new obligations, particularly where the challenged conduct is also the subject of rulemaking. Also highly impactful is the Court's rejection of the CFPB's argument that it is not subject to statutes of limitations when it brings action under certain statutes (such as RESPA) through the administrative adjudication process rather than the courts. Although the CFPB to date has not relied extensively on this argument, there had been a substantial threat that it would increasingly pursue this strategy in the future. If upheld, this ruling on the limitations issue should substantially reduce liability exposure for activities from the distant past.

The CFPB has 45 days to request rehearing en banc by the D.C. Circuit, or 90 days to file a petition for a writ of certiorari with the Supreme Court. PHH also could elect to appeal solely the portion of the Court's determination that Congress need not pass legislation providing for a new structure for the CFPB.

The attorneys of Stroock's Financial Services/Class Action Group are well-positioned to answer any questions you may have about the scope and impact of this decision, as well as related issues.

Originally published October 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.