United States: CFPB Structure Ruled Unconstitutional And Enforcement Reach Under RESPA Curtailed

Anthony E. DiResta and Kwamina Thomas Williford are Partners, and Cynthia A. "Cindy" Gierhart and Brian Goodrich are Associates in Holland & Knight's Washington, D.C. office.


  • The U.S. Court of Appeals for the District of Columbia Circuit has held unconstitutional the current structure of the Consumer Financial Protection Bureau (CFPB), condemning the agency's unparalleled independence and its immense power as a threat to individual liberty.
  • The ruling will not topple the CFPB; the agency will still continue to operate in substantially the same capacity. However, the identity of the agency will shift from an independent agency to an executive agency, which broadens the president's supervisory powers over it.
  • The court's ruling also curtails the CFPB's aggressive interpretation of the Real Estate Settlement Procedures Act (RESPA), providing the public with some added certainty that reasonable longstanding statutory interpretations and limitations periods should be recognized.

The U.S. Court of Appeals for the District of Columbia Circuit on Oct. 11, 2016, held unconstitutional the current structure of the Consumer Financial Protection Bureau (CFPB), broadly condemning the agency's unparalleled independence coupled with its immense power as a threat to individual liberty.

The ruling will not topple the CFPB; the agency will still continue to operate in substantially the same capacity. However, the identity of the agency will shift from an independent agency to an executive agency, which broadens the president's supervisory powers over the agency – including the power to fire the CFPB director at will rather than only for cause.

Significantly, the court rejected the CFPB's new interpretation of a "kickback" under the Real Estate Settlement Procedures Act (RESPA), noting that it ran afoul of due process principles by announcing and retroactively applying this new interpretation. The court noted that the CFPB must give the business community proper notice of what conduct may constitute illegal conduct before holding businesses accountable for that type of behavior.

The court further held that the statutes of limitations for claims brought by the CFPB are determined pursuant to each of the 19 consumer protection statutes that the CFPB is empowered by Congress to enforce – rejecting the CFPB's argument that each of those statutes' individual statute of limitations do not apply to claims brought in CFPB administrative proceedings.


PHH is a mortgage lender that appealed a $109 million order issued against it by the CFPB. In its appeal, PHH argued in part that the CFPB's single-director structure violates Article II of the Constitution.

PHH also argued that the CFPB incorrectly interpreted Section 8 of RESPA when it held that captive reinsurance arrangements were categorically barred. Previously, the U.S. Department of Housing and Urban Development (HUD) had ruled that reinsurance arrangements were lawful so long as the amount paid for the reinsurance did not exceed reasonable market value, thereby eliminating the potential for kickbacks or referral fees.

Even if the CFPB's interpretation of Section 8 was correct, PHH argued that this new interpretation could not be retroactively applied against PHH.

Finally, PHH argued that much of its allegedly unlawful conduct occurred outside the statute of limitations under RESPA. The CFPB argued that no statute of limitations applied when the CFPB seeks to enforce consumer protection laws in administrative proceedings.

The court ruled in favor of PHH on every issue.



In its 100-page opinion, the court chronicled the history of independent and executive agencies in the United States. Traditionally, executive agencies operate under a single director who is, in turn, subject to the direct supervision and serves at the will of the president. Independent agencies are not directly accountable to the president (that is, the president may remove heads of independent agencies only for cause), but because they typically are run by multiple members, they are held accountable by their fellow commissioners or board members.

That balance is vital to the separation of powers and a functioning system of checks and balances, the court held. Congress upset that balance by establishing the CFPB as an independent agency with a single director. While the CFPB compared itself to three other independent agencies with single-director structures, the court distinguished them from the CFPB for two reasons. First, they were recent iterations and therefore outside the court's historical analysis. And second, two of the agencies lack the broad enforcement powers over private citizens that the CFPB has, thereby limiting their potential for abuse. The third agency, the Federal Housing Finance Agency, "is a contemporary of the CFPB and merely raises the same question we confront here," said Judge Brett Kavanaugh, writing for the court.

The CFPB holds immense power to enforce consumer protection laws in federal court and administrative courts, to issue subpoenas, and to impose money damages and injunctions. "And all of this massive power is lodged in one person – the Director – who is not supervised, directed, or checked by the President or by other directors," Judge Kavanaugh wrote. Therefore, the court held, the CFPB's single-director structure is unconstitutional.

Interpretation of RESPA

Significantly, the court rejected the CFPB's position that captive reinsurance agreements violated the ban on referral payments under Section 8(a) of RESPA. The court found such interpretation to be flawed because "nothing" in the statute prohibits "bona fide" payments for goods actually furnished or for services actually performed. Drawing upon the bedrock principles of due process and notice, the court further noted that even if the CFPB's interpretation was consistent with the statute, "the CFPB violated due process by retroactively applying that new interpretation to PHH's conduct that occurred before the date of the CFPB's new interpretation." For approximately two decades, the federal government interpreted these provisions to find captive reinsurance agreements lawful as long as the amount paid did not exceed reasonable market value. The CFPB's proffered position afforded PHH no notice that its conduct would be deemed unlawful. According to the court, "individuals should have an opportunity to know what the law is and to conform their conduct accordingly."

Statute of Limitations

Beyond the constitutional and statutory issues lies PHH's argument that much of the CFPB's claims against it fall outside the statute of limitations. The CFPB argued that, under the Dodd-Frank Act, no statute of limitations applies to enforcement actions brought in administrative proceedings – only to court proceedings. In addition to finding the CFPB's interpretation of the Dodd-Frank Act incorrect, the court said the parties must look beyond the Dodd-Frank Act to each of the statutes that the CFPB enforces to determine the statute-of-limitation requirements under each. Under RESPA, the CFPB had a three-year statute of limitations to bring enforcement actions against PHH, regardless of whether the action is brought in court or in an administrative proceeding.


While the metamorphous from an independent agency to an executive agency may require minimal physical restructuring, it represents a major ideological shift in the authority of the CFPB. As the opinion points out, Congress is free to restructure the CFPB as an independent agency headed by multiple members, or it may remain as an executive agency headed by a single director. But under either structure, the CFPB will be subject to greater authority and accountability. Likewise, the court's ruling curtails the CFPB's aggressive interpretation of RESPA – providing the public with some added certainty that reasonable longstanding statutory interpretations and limitations periods should be recognized.

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.

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